Refinancing a car loan can be a great financial move if you’re looking to lower your interest rate or change the loan term to better suit your budget or goals. However, you might be wondering how soon you can refinance your auto loan after purchasing a vehicle. The answer depends on multiple factors, including the lender’s requirements, your financial situation, and your current loan terms.
Key Points
- You may want to refinance your car loan soon after purchase to take advantage of a lower rate, reduce your loan payments, or revamp your loan term.
- How long you have to wait to refinance your car after purchase depends largely on lender requirements.
- Most lenders don’t have a specific waiting period after you purchase a car before allowing refinancing, though a refinance won’t typically happen until the car title has been transferred to your current lender.
What Is Auto Loan Refinancing?
Car loan refinancing involves replacing your current car loan with a new loan, ideally with a lower rate and better terms. The new lender pays off your existing auto loan, then you start making payments on your new loan. Depending on the specifics of your refinance, you may benefit from lower monthly payments, a more manageable loan term, and an improvement in your cash flow.
Can You Refinance Your Car Loan?
To refinance your car loan, you’ll need to meet certain criteria, which may include the following:
Lender Requirements
Each lender has specific criteria when it comes to auto loan refinancing. While some may require borrowers to wait a certain amount of time, others may allow refinancing soon after purchase. Check with prospective lenders to review their terms.
Credit Score Improvements
If your credit score has increased since you originally took out your car loan, you may have a better chance of qualifying for a lower rate when refinancing. Many lenders only work with borrowers with good credit, while others may accept lower credit scores in favour of a strong income.
Current Interest Rates
If interest rates have decreased since you took out your current car loan, it may be worth considering a car loan refinance. Even a 1% dip in your rate can translate into major savings over the loan term.
Payment History
Lenders prefer to work with borrowers who have a positive payment history before agreeing to refinance.
Loan-To-Value (LTV) Ratio
The LTV ratio is a representation of the loan amount relative to the car’s value of the car. Cars depreciate quickly, so refinancing shortly after purchase could mean a high LTV, which might make it more difficult to qualify for lower rates and favourable loan terms, or qualify for a refinance altogether.
Prepayment Penalties
Some lenders may charge a penalty fee for breaking a car loan agreement before the term’s end date. Find out if such penalties apply in your case, and if so, how much they are and whether they outweigh the potential savings from refinancing.
Speak with a Loans Canada representative today and learn how you can refinance your car loan and save. Call us today at 1-877-995-6269 or click here.
Note: Program is currently not offered in Quebec.
How Soon Can You Refinance A Car Loan After Purchase?
The answer depends on your new lender’s policies (if you’re switching), as well as the conditions of your new loan contract. That said, you can generally refinance an auto loan as soon as the car title has been transferred to your current lender, which can take anywhere from 60 to 90 days after purchase.
However, some lenders may require at least 6 months to pass before allowing a refinance. Waiting can also give you more time to improve your credit score with timely car loan payments.
Can You Refinance A Car Loan After 3 Months?
Generally, most lenders won’t consider your refinancing application until your vehicle’s title has been transferred to them from the previous owner, lender, or manufacturer. That process alone can take about 2 or 3 months. So, in the meantime, you might want to compare rates and pre-qualify with other lenders to see if you can find a better deal.
Keep in mind that your credit score may have also dropped slightly after you applied for your previous car loan. Since a lower credit score can lead to higher interest rates, it’s a good idea to use that extra time and improve yours (unless you still have great credit).
Can You Refinance a Car Loan After 6 Months?
If you’ve experienced debt problems in the past or you’re new to vehicle financing, it may be smart to wait at least 6 months to a year until you try to refinance your car loan. This will give you plenty of time to build a solid credit score and credit history, as most lenders like to see 6 – 12 months of responsible payments before approving a borrower.
However, if your credit, income, and debt levels are currently strong enough to qualify for a loan with a lower rate, 6 months should be enough time to wait until you apply to refinance your car loan.
Can You Refinance A Car Loan After 2 Years?
Waiting at least 2 years to refinance your car loan may give you enough time to establish a positive payment history, which can help you qualify for a lower rate. This is especially true if rates have dropped or your credit score has improved since you first took out the loan.
That said, depending on how long your current loan term is, waiting too long to refinance might leave you with little time left on your existing loan term. In this case, you may not have enough time to realize significant savings with a refinance. Further, lenders may have specific refinancing criteria in regards to the number of months left on your loan term. You’ll need to find out what these requirements are before you apply.
Where Can You Refinance Your Car Loan?
| Amount | Interest | Term (months) | ||
 | Up to $50,000 | 15.99% + | 12 – 72 | Learn more |
How To Refinance Your Car Loan After Purchase?
To refinance your car loan after purchase, follow these steps:
Step 1: Check Your Credit Score
If your credit score has improved since you took out your current car loan, you may be able to qualify for a lower rate when you refinance. This can help save you quite a bit of money over the loan term.
Step 2: Review Your Existing Car Loan Terms
Understand your current car loan’s interest rate, loan term, remaining balance, and if there are any prepayment penalties to be paid for breaking your contract early.
Step 3: Compare Lenders
Do some research on different lenders and their loan offers to see where you can get the best rates and terms.
Step 4: Fill Out An Application
Once you’ve decided on a lender and refinance option, complete the application and provide the necessary documents, which may include the following:
- Government photo identification, like your driver’s license or passport
- Your tax return information or a recent pay stub from your source of employment
- Your banking details or a VOID cheque for a pre-authorized payment agreement
- Essential information about your car (make, model, trim, title, year, etc.).
Step 5: Start Making Payments On Your New Car Loan
After you’ve reviewed your offer and signed your new loan contract, you’ll start making payments on your new car loan according to the new terms.
Should You Refinance Your Car Loan?
Before deciding to refinance a car loan, there are a few things you should consider. Your new payment term and interest rate could drastically affect the overall cost of your car loan, so be sure to take your time and do your research when making your decision.
You may want to consider refinancing your car loan in the following situations:
- Your Credit Score Has Improved: If your credit score has significantly increased, you may qualify for a lower interest rate, saving you money.
- Interest Rates Have Decreased: If current interest rates are lower than when you took out your existing car loan, you could save money by refinancing.
- Your Financial Situation Has Changed: If your financial health has weakened and you need to lower your monthly car loan payments, refinancing may allow you to extend the loan term and reduce your payment amounts.
Reasons You Should NOT Refinance Your Car Loan
Refinancing a car loan is a serious financial commitment that shouldn’t be taken lightly. There are some major reasons to avoid refinancing a car loan after purchase, such as:
- Interest Rates Have Increased: If the current refinancing rates are higher than your current rate, it wouldn’t be worth it to refinance.
- Prepayment Penalties Are High: If your current loan has very high prepayment penalties, the cost of refinancing might cancel out any savings.
- There’s Little Time Left On Your Loan Term: If there are only a few months left on your current loan, you may not have enough time to save money by refinancing.
- You Have Negative Equity: If the outstanding balance of your car loan is higher than what your car is worth, you may have trouble refinancing with favourable loan terms.
Bottom Line
If you’ve decided to refinance a car loan after a purchase, don’t forget to compare lenders and interest rates beforehand. After all, refinancing may save you a lot of money only if you get a good deal. Consider your credit score, income, car value, fees, and lender requirements before applying to refinance your car loan.
