How to Refinance Your Auto Loan: Benefits, Tips, and Steps

People sitting in trunk of car


In today's dynamic economic landscape, many Americans rely on a personal vehicle for daily tasks like commuting to work, school, or just running errands. But owning a car can be a costly endeavor. Recent data reveals that over 100 million Americans finance their vehicles through auto loans, and a significant portion might be paying more than necessary. If you're burdened with a high-interest loan for your cherished car, auto loan refinancing could be your ticket to substantial savings. Explore this guide to discover how the refinancing process can benefit you.

What is Auto Refinancing?

Refinancing your auto loan essentially means replacing your current loan with a new one, often with more favorable terms or a different lender. For example: You acquired a car loan from a dealership a year back with a 60-month term at a 6.5% interest rate, costing you $500 monthly. Over the year, you've shelled out $6,000. Now, by opting to refinance for a better rate and a 48-month term, your monthly commitment drops to $425. This change translates to $3,600 in savings across your loan's lifespan.


Prior to hitting the car dealerships, get a pre-approval for your auto loan. It’s a smart way to sidestep high dealership rates.

Advantages and Disadvantages of Auto Refinancing

5 Reasons to Consider Refinancing Your Car Loan

Achieve a Lower Interest Rate: Factors such as credit scores, debt-to-income ratio, and the vehicle's cost play pivotal roles in the interest rate you're offered. Given how these indicators can shift over time, you might find yourself eligible for a more attractive rate now.

Reduce Monthly Payments: Refinancing provides flexibility in adjusting your loan terms, potentially extending your repayment period and decreasing monthly payments. While this can mean more manageable monthly bills, it might extend the loan's duration.

Modify Loan Borrowers: Whether you initially needed a co-signer or you're looking to add another responsible party, refinancing allows adjustments to the borrower details on the loan.

Switch to a Preferred Lender: Every financial institution has its unique offerings and ways to handle loan payments. If you’re not thrilled with your current lender, refinancing lets you make the switch.

Cash-out Option: If your vehicle's market value exceeds the outstanding loan amount (equity), some refinancing deals let you cash out this difference.


Some refinancing options, like those at First Service, might offer a grace period where your first repayment isn't due immediately, sometimes for up to 90 days.

However, as with any financial move, auto refinancing isn't universally beneficial. It's important to consider both its pros and cons to align with your financial objectives.

Additional Considerations

To gauge if refinancing is the right financial move:

  • Assess any up-front costs or fees linked to the refinancing process.
  • Ensure your new interest rate is fixed, not variable.
  • Analyze the long-term implications. While monthly savings might be enticing, extended loan terms can lead to higher overall payments.


Modern auto loan calculators are great tools for quick estimates. But for comprehensive insights, consult a trusted loan advisor.

Steps to Refinance Your Auto Loan

If you've weighed the benefits and potential pitfalls and are leaning towards refinancing, streamline the application process by being prepared:

  • Details of your current loan, such as outstanding balance, interest rate, and remaining term.
  • Your car's Vehicle Identification Number (VIN).
  • Essential identification: Driver's license and Social Security card number.
  • Recent pay stubs or proof of income.


Check your credit score and obtain your credit report before initiating the refinancing process. These will give you a realistic snapshot of where you stand and assist your loan advisor in guiding you effectively.

Why Choose First Service for Your Auto Loan Refinancing?

Navigating the world of car loans shouldn't be scary. At First Service, we’re committed to simplifying the auto loan and refinancing journey, ensuring it's fast, transparent, and tailored to your needs. Our seasoned loan advisors are here to illuminate your options, ensuring you're equipped to make informed decisions.

Get Started with Your Car Loan Application