How Many Times Can You Refinance a Car Loan?

There is no limit to the number of times you can refinance a car loan, so in theory, you can refinance as many times as you like. However, that may not always be in your best financial interest.

Each time you refinance, you’ll need to find a new lender, since most lenders won’t refinance their own loans. You should also make sure that refinancing makes financial sense, because prepayment penalties and refinancing fees can reduce any savings from a lower interest rate or longer term.

How Long Should You Wait Before Refinancing Your Car Loan?

Refinancing a car loan can lower your interest rate and monthly payment, adjust your repayment term, or allow you to tap the equity in your car. However, be aware that refinancing means replacing one loan with another. You’ll still have to pay off the principal in full no matter what your new terms are.

That said, there is no minimum waiting period before you can refinance a car loan (though after buying a car, you do have to wait until the title has been transferred to your name). You may find a lender who is willing to refinance your loan soon after it’s funded.

Should You Refinance Your Car?

You may benefit from refinancing your car loan by securing lower monthly repayments, a lower interest rate, or both. But in some cases, such as when fees offset savings, it may not make financial sense.

When Refinancing Makes Sense

Some reasons why it might be a good time to refinance a car loan include:

• Lowering your monthly repayments: If your financial circumstances have changed, and you can no longer afford your monthly auto loan repayments, you might be able to lower your payments by refinancing. This will generally mean extending your loan term. You’ll pay less monthly, but the loan will last longer and you’ll pay more in interest over the course of the loan.
• Paying less in interest: If your credit score has increased since you took out the loan, you might be able to swap to a loan with a lower interest rate. This will save you money over the long term.
• Adding or removing a co-borrower: If you become single or get married during the loan, you can change the names on the loan by refinancing.
• Changing lenders: If your lender is providing poor service, you can swap to a new lender by refinancing. 

When Refinancing Doesn’t Make Sense

Some reasons why refinancing may not make financial sense include:

• Paying a prepayment penalty on your current loan: You may have to pay a prepayment penalty, which can eliminate the financial advantages of refinancing.
• Paying origination fees: If a new loan has origination fees, they could outweigh the savings you’ll make by refinancing.
• Owning an older car: Most lenders won’t refinance a car that is more than 10 years old, or with excessive mileage.

Other Drawbacks of Frequent Refinancing

It can make sense to refinance your car loan a couple of times over the course of the loan. However, refinancing too many times can have disadvantages. 

Refinancing can temporarily lower your credit score. Each time you refinance, your lender will perform a credit check. Occasional checks won’t hurt your score too much, but several hard inquiries can have a more significant impact.

Refinancing often can cost a lot in fees. Each time you refinance, you’ll probably have to pay fees, either from your old loan or your new one. If you refinance frequently, these fees can easily outweigh the financial advantages of refinancing.

Finally, if you refinance too often, you could end up underwater. Your car is a depreciating asset, meaning it is worth less each year. If you keep extending your car loan, you could end up owing more on your loan than your car is worth. In that situation, even if you sell your car, the buyer can’t take over your car loan, so you could still owe your lender money even if you no longer own the car.

Alternatives to Refinancing Your Car Loan

Whether you want to reduce your monthly payments or reduce the amount of interest you pay, there are alternatives to refinancing. You can:

• Change your existing loan agreement: It’s often cheaper and easier to ask your existing lender if you can change your loan terms. This way, you will avoid fees and you won’t have as much paperwork.
• Trade your car for a cheaper one: If you want to reduce your payments, you can sell your car, pay off your existing loan, and take out a new loan for a cheaper car. This can often be easier than refinancing.

The Bottom Line

You can refinance a car loan as many times as you like, as there is no legal limit. If you want to make lower repayments over a longer period (but pay more interest), or if your credit score has improved since you took out the loan, then it can make financial sense to refinance your auto loan.

However, refinancing many times can result in you paying a lot in fees, and it may harm your credit score.

Consider consulting a financial advisor to help you weigh the pros and cons of refinancing in your situation.