Refinance rates are what lenders charge you to pay off your old car loan and replace it with a new one
A refinance rate is the interest rate a lender offers when you replace your existing auto loan with a new loan. It is not a discount or a special offer—it is straightforward the cost of borrowing money under the new loan terms. The rate you receive depends on your credit score, the age and value of your vehicle, how much you still owe, current market conditions, and the lender you choose.
The goal of refinancing is usually to lower your monthly payment, reduce the total interest you pay over the life of the loan, or both. Whether refinancing makes financial sense depends entirely on whether your new rate is lower than your current rate, and whether you plan to keep the car long enough to recoup the costs of refinancing.
Key Takeaways
- Your refinance rate is determined by your credit score, the vehicle's age and value, your loan-to-value ratio, and current market interest rates set by the Federal Reserve.
- A lower refinance rate saves you money only if it is significantly lower than your current rate—typically at least 1 to 2 percentage points—to offset refinancing fees.
- Credit unions and online lenders often offer different rates than traditional banks, so comparing offers from multiple lenders is necessary to find the best rate available to you.
- The age of your vehicle matters: lenders charge higher rates for older cars because they are worth less and carry more risk of breakdown.
- Refinancing does not change what you owe on the car itself—only the terms and cost of the loan—so you cannot refinance if you owe more than the car is worth.
How your credit score shapes the rate you are offered
Your credit score is the single largest factor in the rate a lender will offer. Lenders use your score to predict whether you will repay the loan on time. A higher score signals lower risk, so you receive a lower rate. A lower score signals higher risk, so you receive a higher rate.
Credit scores range from 300 to 850. Most lenders have minimum score thresholds—some will not refinance below 620, while others will work with scores as low as 580. The difference between a 650 score and a 750 score can easily be 2 to 3 percentage points on your rate, which translates to hundreds of dollars over the life of the loan.
If your credit score has improved since you took out your original loan, refinancing becomes more attractive. If your score has dropped, refinancing may not be worth the cost, or you may not be offered a rate low enough to justify it.
The vehicle's age and condition affect what rate you may have access to for
Lenders care about the car itself because it is the collateral—the asset they can repossess if you stop paying. An older vehicle is worth less money and is more likely to break down, leaving you unable to make payments. For this reason, lenders charge higher rates on older cars.
Most lenders will refinance vehicles up to 10 years old, though some go to 12 or 15 years. A car that is 3 years old will receive a better rate than a car that is 8 years old, all else being equal. The vehicle's condition and mileage also matter—a well-maintained car with 80,000 miles will receive a better rate than a neglected car with 150,000 miles.
You will need to provide the vehicle identification number (VIN) and current mileage when you request a rate quote. The lender will use this information to look up the car's market value and assess the risk.
Your loan-to-value ratio determines whether you can refinance at all
Your loan-to-value ratio (LTV) is the amount you still owe divided by what the car is currently worth. If you owe $15,000 and the car is worth $18,000, your LTV is 83 percent. If you owe $18,000 and the car is worth $15,000, you are underwater—you owe more than the car is worth.
Most lenders will not refinance if your LTV is above 125 percent. Some will not go above 110 percent. If you are underwater, you cannot refinance through a standard auto loan. Some credit unions and specialized lenders offer underwater refinancing, but the rates are much higher because the lender has no collateral to recover if you default.
You can find your car's current market value through Kelley Blue Book, NADA Guides, or Edmunds. These sites ask for your vehicle's year, make, model, mileage, and condition. The value they show is what lenders will use to calculate your LTV.
Market interest rates and Federal Reserve policy set the floor for all offers
Individual lenders do not set interest rates in a vacuum. The Federal Reserve sets a benchmark interest rate that influences what banks charge for all types of loans, including auto refinancing. When the Fed raises its rate, auto loan rates across the industry tend to rise. When the Fed lowers its rate, auto loan rates tend to fall.
This means the rates available to you on any given day depend partly on economic conditions outside your control. If you refinance when rates are high, you may lock in a rate that is higher than what becomes available three months later. Conversely, if rates are falling, waiting may result in an even better offer.
You cannot predict where rates will go, but you can monitor them. Most lenders publish their current rates on their websites, and financial news outlets report on Fed decisions and rate trends. Checking rates every few months gives you a sense of whether the market is moving in your favor.
Different lenders offer different rates for the same borrower
Banks, credit unions, and online lenders all compete for your business, and they price their loans differently. A bank might offer you 5.2 percent while a credit union offers 4.8 percent for the same car and credit profile. An online lender might offer 5.5 percent. These differences add up to real money over the life of the loan.
Credit unions often offer lower rates than banks because they are member-owned and operate on a nonprofit basis. Online lenders have lower overhead costs and sometimes offer competitive rates, though not always. Your current lender may offer you a rate that is worse than what you could get elsewhere, even if you have been a loyal customer.
The only way to know what rate you actually may have access to for is to request quotes from multiple lenders. Most lenders allow you to check your rate without a hard inquiry on your credit report—this is called a soft inquiry and does not affect your score. Gathering three to five quotes takes a few hours and can reveal significant differences.
How to compare refinance rates across lenders
When you request a rate quote, the lender will ask for your name, address, Social Security number, vehicle information (VIN and mileage), and current loan details (lender name, account number, and remaining balance). They will then run a soft inquiry and provide you with an estimated rate and monthly payment.
Write down the rate, the loan term (36, 48, 60, or 72 months), the monthly payment, and any fees the lender mentions. Do not compare rates in isolation—a lower rate on a 72-month loan may result in a higher total interest cost than a higher rate on a 48-month loan. Calculate the total amount you will pay (monthly payment × number of months) to see the true cost.
Also ask about refinancing fees. Some lenders charge an origination fee (typically 0.5 to 1 percent of the loan amount), a documentation fee, or a title transfer fee. These fees are sometimes rolled into the loan balance, which means you pay interest on them. A lower rate with high fees may not save you money compared to a slightly higher rate with no fees.
Frequently Asked Questions
What is a good refinance rate right now?
Rates vary by lender, credit score, and vehicle age. There is no single "good" rate—it is good only if it is lower than your current rate by enough to offset refinancing costs. Check current rates from at least three lenders to see what range is available to you based on your specific situation.
Will refinancing hurt my credit score?
A soft inquiry does not affect your score. A hard inquiry (which happens when you formally explore) causes a small, temporary dip of a few points. Multiple hard inquiries within a short window (typically two weeks) count as one inquiry, so gathering quotes quickly minimizes the impact.
Can I refinance if I have bad credit?
Yes, but you will receive a higher rate than someone with good credit. Some lenders specialize in bad-credit refinancing. The question is whether the rate is low enough to save you money compared to your current loan. If not, refinancing may not make financial sense.
How long does it take to get a refinance rate locked in?
Once you formally explore and the lender approves you, the rate is typically locked for 30 to 60 days. This gives you time to complete the paperwork and have the lender pay off your old loan. If rates change during this period, your locked rate does not change.
What happens to my old loan when I refinance?
The new lender pays off your old loan in full. You then owe the new lender instead of the old one. Your old lender releases the lien on the vehicle, and the new lender takes its place. You make payments to the new lender going forward.