How Long Do You Have to Pay on a Vehicle Before You Can Refinance in Your Own Name?

by Chris Brantley
You can refinance a car loan at any time.

You can save money by refinancing your car, especially if you have a high-interest loan, auto loan interest rates have dropped or your credit score has improved since your original car loan. Lenders do not require you to make a certain amount of payments to refinance, but you can raise your credit score if you make timely payments on your existing car loan for at least six months. Also, if you can qualify for a better interest rate and lower your monthly payments, you will save more money by refinancing sooner rather than later.

Credit Scores

Knowing your credit score helps you decide whether to refinance.

Auto loan rates vary significantly depending on your credit score. Interest rates can increase more than 14 percent from the highest credit score tier (720-850) to the lowest tier (500-589). For example, a $20,000 car loan for 48 months at the highest tier costs about $460 per month, while one at the lowest costs almost $600 a month. Over 48 months, you pay an extra $6,720 for the same exact car.

Interest Rates

Monitor auto loan interest rates to determine the best time to refinance.

A 1 percent drop in auto loan interest rates can save you around $500 on a $20,000 car loan. You can easily track current car loan rates by going to a website such as www.bankrate.com. Then you can compare the auto loan rates to your current rate. You can also use online auto loan calculators to find exactly how much your monthly payment decreases based on the lower interest rate. If rates have fallen at least 1 percent, you should consider refinancing, as long as your credit score is the same or better than when you originally borrowed the money for your car.

Sub-Prime Car Loans

Lower credit scores mean higher interest rates.

If your credit score was below 640 when you bought your car, you probably have a sub-prime car loan. This means you pay anywhere from 5 percent to 10 percent more than a car owner with a higher credit score. If your credit score has increased to at least 660, you can likely qualify for a car loan that's at least 2 percent better than your current loan. If you score is 700 or above, you can probably cut your interest rate in half by refinancing your car loan.

Loan Payment Terms

Most lenders give you more time to pay back a new car loan.

New car loans usually cost more than used car loans, but allow you to extend your car payments over 60 months instead of 36 or 48 months. A longer-term payment period decreases your monthly payment, but a shorter-term loan payback period should slightly lower your interest rate and reduce your overall costs. Plus, when you refinance, you'll have a smaller loan amount because a portion of your monthly payment was applied to the principal (loan amount minus interest and fees).

About the Author

Chris Brantley began writing professionally for a financial analysis firm in 1997. From 2000 to 2004, he worked as a financial advisor, specializing in retirement planning and earned his Series 7, Series 66 and insurance licenses. Brantley started his full-time writing career in 2012 and has written for a variety of financial websites, including insurance, real estate, loan and investment sites. He holds a Bachelor of Arts in English from the University of Georgia.

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