Can You Refinance Your Car Loan?

Yes. Refinancing replaces your current car loan with a new one, ideally at a lower interest rate or a lower monthly payment.

It tends to help when your credit has improved, rates have dropped since you took out the loan, or you need to remove a co-signer.

It tends to work against you if you owe more than the car is worth, your car is older, or you're close to paying off the loan anyway.

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• +74 points average credit score increase seen using our credit building tools*
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How Car Loan Refinancing Works

A new lender pays off your current loan balance directly.

You then make payments to the new lender under new terms, whether that's a lower rate, a different term length, or both.

In Canada, your car loan is registered as a lien against the vehicle, usually through your province's personal property registry. Refinancing means discharging the old lien and registering a new one in the new lender's name.

When Refinancing Can Save You Money

A few situations usually make refinancing worth exploring.

Your credit score has improved meaningfully since you took out the original loan, which can qualify you for a lower rate.

Interest rates in general have dropped since you signed your loan. You want to remove a co-signer now that you qualify on your own. Or your original loan was arranged through the dealership at a marked up rate, and a bank or credit union offers you better terms directly.

When Refinancing Works Against You

Refinancing isn't automatically a win.

A few signs it may not help:

• You owe more than the car is worth. Lenders are often reluctant to refinance a loan with negative equity, and some will ask you to cover the difference upfront.
• You're near the end of your term. The fees and effort involved may cost more than the interest you'd save in the time remaining.
• You'd stretch the term to lower the payment. A smaller monthly payment can mean paying more in total interest over a longer loan.
• Rates have risen since your original loan. Refinancing only helps if the new terms actually beat your current ones.

What Lenders Check Before Approving You

Refinancing approval depends on similar factors to your original loan, reassessed with current information:

• Your credit score and history, now rather than when you first borrowed
• Your income and existing debt, to confirm you can handle the new payment
• The loan-to-value ratio, meaning what you still owe compared to the car's current market value
• The vehicle's age and mileage, since many lenders cap how old or how high mileage a car can be and still qualify
• Your remaining loan balance, since some lenders set a minimum amount they'll refinance

Costs That Can Offset Your Savings

Before switching, check for costs that could cancel out your expected savings:

• A discharge or payout fee from your current lender
• A new lien registration fee with your province's registry
• A prepayment penalty on your original loan, if your agreement includes one (more common on dealer arranged or subprime loans than on bank loans)

Ask your current lender for your exact payout amount in writing, since it may include interest or fees beyond your remaining principal.

How to Tell If It's Worth Switching

Compare the total cost of your remaining payments on your current loan against the total cost of the new loan, not just the monthly payment.

Get your current payoff balance, a realistic estimate of your car's value, and quotes from two or three lenders before you decide.

If the new loan costs less overall after accounting for any fees, refinancing is worth it. If it only lowers your monthly payment by extending the term, make sure that trade off is one you actually want.

*Based on users with a starting score of 450 or under and who used all of our credit building tools (i.e. Credit Building, Secured Credit Building) for 12+ months with on time payments. Credit building tools we offer are not a credit repair tool and does not guarantee an improvement in credit score. Credit scores are based on complex models involving a variety of factors. Consistent on-time payments help improve scores and missed or late payments may cause credit scores to decrease. Outcomes may vary among users.