When should you refinance your car loan? And when to wait

The best time to refinance is when your credit score or overall financial situation has improved.

Generally, you should aim to either lower your interest rate or your monthly payment — preferably both.

Avoid refinancing when auto loan rates are high or if you won't be able to save money by switching lenders.

It makes sense to consider refinancing your auto loan if you can lower your interest rate and monthly payment. The refinancing process involves swapping your current loan for a new loan with different — and ideally better — terms.

However, refinancing is not always a wise financial move. If interest rates are high, or if you're close to paying off your loan, then it may make more sense to stick with your current lender. Knowing the ins and outs of when to refinance and when to wait will help you make the best decision for refinancing your auto loan.

When should you refinance your car loan?

There are multiple benefits to refinancing and quite a few situations where refinancing makes the most sense. In general, the best time to refinance your auto loan is when you can reduce the interest rate, but even just lowering your monthly payment can add much-needed room to your budget.

Refinancing is a good move when rates are low. Auto loan refinancing rates tend to match used vehicle rates, which currently average 11.19%, according to Experian data . However, Bankrate's data shows that the auto loan rates for a 48-month used car loan haven't changed significantly in months. If you borrowed your loan when rates were high, like in 2022, you could benefit from an auto loan refinance.

Assuming a remaining loan balance of $10,000 and a term of four years, this is how refinancing from a 15% APR to a 7% APR can affect your overall costs:

Your total savings would be about $39 a month — but you would reduce the total interest you pay by $1,865.

When your credit score and DTI have improved

Improving your credit score may be enough to get a lower rate. The difference between applying for a loan with good credit and applying with bad credit is significant. For many auto loans, it can mean an APR that is more than 10 percentage points lower. That could mean major savings on your monthly payment and total interest costs.

Even if market rates haven't changed much since you first borrowed, refinancing with a better credit score can lead to savings on your auto loan.