How Refinancing Can Lower Your Auto Loan Payment

auto refi
Fiona Staff3/24/2022

Many adults today rely on a personal vehicle for transportation, leading to the nearly 276 million cars that are currently registered in the United States. Car ownership can be an expensive venture, though, with the cost of both new and used cars skyrocketing in recent years.

According to Kelley Blue Book, the cost of a new vehicle reached an all-time high of more than $47,000 in 2021. Facing price tags like that, the vast majority of buyers understandably choose to finance their purchase with the help of an auto loan.

Over time, though, buyers may find that this auto loan — and accompanying monthly payment — doesn’t work for their budget or long-term finances. When that happens, it might be time to consider refinancing.

What It Means to Refinance an Auto Loan

Refinancing involves taking out a new loan in order to pay off, and ultimately replace, an existing debt. A refinance loan (also known as a refi) can be used to swap out a current personal loan, student loan, and even an auto loan into a product with better loan terms.

Refinancing an auto loan can often be accomplished through your existing lender. Other times, however, you may want to refinance through another lender, especially if you’re looking to lower your monthly payment.

How an Auto Loan Refinance Can Affect Your Monthly Payment

There are a few different ways that refinancing can save you money, including lowering your monthly car payment. 

A refinance loan may come with a lower interest rate. By reducing the APR of your auto loan, you’ll pay less in interest monthly (which can lower your minimum payment) and over the life of your overall loan.

Lenders may be willing to offer you a lower interest rate if:

  • You have improved your credit score/credit history since buying the vehicle.

  • Market interest rates have dropped since you took out your original loan.

  • You choose to refinance with different loan terms.

  • You add a co-borrower to the loan.

With a refi, you can extend your total loan term. Let’s say you have two years left of a four-year auto loan term. With a refinance loan, you can spread your remaining balance out over three, four, or even five more years in some cases, lowering the amount you’ll be required to pay monthly. 

Note that this means you’ll be paying off the debt for longer, and will typically pay more in overall interest, but it can be a simple way to reduce your monthly payment obligation. All other variables the same, here's an example of how that would look:

  • Current loan: 24 months remaining at $500/mo ($12,000 outstanding balance)

  • New refi loan: 48 months remaining at $250/mo (same $12,000 outstanding balance)

Benefitting from an Auto Loan Refinance

For qualifying borrowers, refinancing an auto loan can help you to lower a loan’s interest rate, reduce your monthly payment obligation, pay off your vehicle earlier, or, in some cases, accomplish all three. 

You can also use an auto loan refinance to remove a co-borrower’s obligation to your debt. For instance, if you had a parent cosign for your car because you couldn’t qualify on your own (or you received a better interest rate with them on the loan), you can later choose to release them from the balance.

Shop Around Before Choosing Your Refi Loan

If you’re looking to refinance your auto loan, shopping around can help ensure that you snag the best possible terms. This can save you both money and headaches down the road, and get you on your way to a lower monthly payment in no time.

Fiona can help make this process simple! By shopping around on our platform, you can quickly be matched with personalized offers from multiple lenders, all in one place. Rather than browse various lenders’ sites or enter your information repeatedly, Fiona allows you to easily be connected with offers from top-rated lenders.


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