How Many Times Can You Refinance a Car Loan?

How Often Can You Refinance Your Car?

There's technically no limit to how many times you can refinance a car. You'll just have to meet the loan eligibility requirements, which can vary depending on the lender. When you refinance, you'll take out a new auto loan and use that to pay off your original balance. You'll then have a fresh loan with a new monthly payment. Your interest rate and loan term might also be more compatible with your financial situation.

Learn more: How Soon Can You Refinance a Car Loan After Purchase?

Requirements to Refinance a Car Loan

You might be able to refinance with your current lender, but it's wise to gather quotes and shop around with multiple lenders. Just know that every lender will have its own eligibility criteria—and if you've refinanced several times before, it might suggest that you're having financial issues. Having said that, lenders will likely consider the following:

• Your loan-to-value ratio: This looks at your loan's balance relative to your car's value. If you're upside down on your car loan, meaning you owe more than your vehicle is worth, you might have a tough time qualifying for a refinance loan.
• Your car's age and mileage: Lenders may be hesitant to refinance a car that's been on the road for 10 years or longer. The same goes for cars that have over 125,000 miles. That's because your car's value will be a factor when a lender runs your application.
• Your credit health: Having a FICO^® Score^☉ of at least 670 can increase your chances of getting approved for a refinance loan—and help you qualify for the better rates and terms. But some lenders will approve borrowers with less-than-perfect credit, assuming you meet their other eligibility requirements. That often includes a debt-to-income ratio (DTI) that doesn't exceed 50%.
• Your overall financial situation: Be prepared to provide proof of income to show lenders that you have the financial means to make your monthly loan payments.

Reasons You Might Want to Refinance Your Car More Than Once

Refinancing more than once isn't necessarily a bad thing. Here are some situations where it might be worth considering:

• Your credit score has improved. If your credit score was lower the last time you refinanced, you might be eligible for a better interest rate this time around. Refinancing could allow you to save on interest and reduce your monthly payment.
• Interest rates are declining. If annual percentage rates (APRs) are trending downward, you might be able to secure a better rate. That could save you a significant amount of money over the long haul. APRs usually move in the same direction as the federal funds rate, which is a benchmark rate that's set by the Federal Reserve.
• You're in a tough financial spot. Whether your income has dropped or your expenses have gone up, your current monthly car payment might be stretching your budget. Refinancing could help you avoid defaulting on your loan.
• You want to change your loan term. When you refinance a car loan, you'll be able to modify the length of your loan term. You might opt for a shorter term, which can allow you to pay off your loan faster—and spend less on interest over the life of the loan.

Tip: A car payment calculator can help you run the numbers to decide if refinancing your auto loan will save you money.

Why You Shouldn't Refinance Your Car Too Many Times

Refinancing isn't always the best choice. You might want to rethink things if:

• You've recently refinanced. Some lenders won't work with you if your existing car loan is less than six months old. This isn't a hard-and-fast rule, but it could limit your options when looking for a refinance loan.
• You have negative equity in your vehicle. Being underwater on your car loan can make it difficult to refinance. This happens when the amount you owe on your loan exceeds the car's current value. Cars often depreciate quickly. Most new vehicles lose 20% of their value within the first year, according to Kelley Blue Book.
• Your credit score has gone down. If your credit health is worse today than it was the last time you refinanced, you may not be eligible for a better interest rate. Refinancing will also result in a hard credit inquiry that could temporarily reduce your credit score by a few points.
• Your car is older or has a lot of miles. Again, lenders may be reluctant to refinance a vehicle that's at least 10 years old or has more than 125,000 miles.
• Refinancing would result in a prepayment penalty. Some loans will penalize you if you pay off your balance ahead of schedule. Auto loan prepayment penalties typically amount to 2% of the outstanding balance.

Does Refinancing a Car Hurt Your Credit?

Making the choice to refinance a car could slightly damage your credit in the short term, but the benefits may still be worth it. Every new loan application will result in a hard inquiry on your credit report. A single inquiry could impact your credit score for up to a year and typically reduces your credit score by less than five points.

One bright spot is that multiple auto loan inquiries that occur within a short time period—14 to 45 days depending on the credit scoring model—are treated as a single inquiry. But refinancing several times could have a compounding negative effect on your credit score.

Alternatives to Refinancing a Car Loan

If you're unhappy with your auto loan, refinancing may not be your only option. Consider these alternatives before making a decision:

• Sell or trade in your car. This may be a good option if your car loan is too big for your budget. Opting for a less expensive car can reduce your monthly payments and provide immediate financial relief.
• Work with your lender. You may be eligible for an auto loan hardship program, which could allow you to defer your payments, modify your due date or make reduced payments.
• Explore other financing options. If money is tight, you can also weigh the pros and cons of a cash-out auto refinance, personal loan or home equity loan or line of credit. One of these options could help ease the financial burden.

The Bottom Line

There's no rule that limits the amount of times you can refinance a car, but doing so isn't always in your best interest. You'll want to consider the age and condition of your car, your financial situation and your credit health before making a decision. The ultimate goal of refinancing is to save money, whether that's through lower monthly payments or a reduced interest rate.

No matter what you choose, your credit score will play an important role in your ability to refinance. You can get your credit report and FICO^® Score for free from Experian.