How Many Times Can You Refinance a Car Loan? You can refinance a car loan multiple times without any set restrictions, allowing you to do so as often as you wish. However, it might not be the most suitable financial decision as it could damage your credit if done regularly. Whenever you choose to refinance, you are required to get a different lender because most lenders typically don’t refinance their loans.
Additionally, it’s crucial to assess whether refinancing is economically beneficial, as potential prepayment penalties and refinancing fees can diminish any potential savings. This could result in a reduced interest rate or an extended loan term.
How Refinancing Works
When you try obtaining refinancing, the lender typically inquires about your vehicle’s age, mileage, and the remaining balance on your current car loan. Most lenders prefer to refinance vehicles under 10 years old with fewer than 100,000 miles. However, it might become challenging as your car ages, losing value or depreciating. Car loans follow a front-loaded, amortized structure.
In the initial stages, when the principal (amount owed) increases, the borrower’s interest payments increase. Toward the loan’s end, payments contribute more to reducing the principal.
Additionally, lenders stand to gain more from those who refinance early, while borrowers can secure suitable interest rates. While refinancing may not be worthwhile if the remaining loan term is less than a year,
Requirements for Refinancing
The length of time for refinancing doesn’t matter compared to meeting other lender requirements for refinancing your car. These requirements may include:
Age
Many lenders typically mandate that your car not be more than 10 years old. However, if you are pursuing refinancing for the second or third time, the age of your car might surpass this limit, rendering it ineligible for refinancing.
Car Value
The value of the vehicle should not be less than the amount you owe on the loan. Refinancing multiple times can easily lead to being upside down on your car loan, posing a challenge to meet this requirement for some borrowers.
Mileage
Many lenders set a mileage limit for refinancing, often around 100,000 to 150,000 miles. However, if you have owned the car for an extended period, the mileage might exceed that of many lenders.
Duration on Loan
Some lenders may mandate a minimum amount of time remaining on the loan to be eligible for refinancing. For example, certain lenders might permit refinancing only if there are at least six months left on the loan.
Amount Left on Loan
Lenders may establish minimum borrowing amounts, typically between $5,000 and $10,000, to ensure they can generate enough interest on the loan.
Advantages of Refinancing a Car Loan More Than Once
Refinancing your car loan can be advantageous, potentially resulting in reduced monthly payments or a lower interest rate. However, in certain situations where fees outweigh the potential savings, it may not be a financially right decision.
Lower Monthly Repayments
If changes in your financial situation make it tough to meet your monthly payments, refinancing could be an option to lower them. Typically, this involves extending the loan term, resulting in reduced monthly payments.
While this provides temporary relief, it also means the loan duration is extended, leading to higher overall interest payments throughout the loan.
Lower interest rate
If your credit score has improved since you obtained your loan, there’s a possibility of switching to a loan with a lower interest rate. However, this can result in long-term savings for you.
Co-Borrower
If your relationship status changes, such as becoming single or getting married during the loan period, it’s possible to update the names on the loan through refinancing.
Changing Lenders
When your lender offers an unsatisfactory service, refinancing gives you the option to switch to a new lender.
Disadvantages of Refinancing a Car Loan More Than Once
While multiple refinancings can lead to cost savings in many cases, there are situations where pursuing refinancing more than once may not be the right financial decision.
Prepayment Penalty
Such a situation can occur when your existing lender might impose a prepayment penalty if you decide to pay off your loan early.
Increases in Fees
Refinancing transactions typically involve standard fees such as loan origination and title transfer fees. These costs can become significant, along with the potential extra interest from extending the loan term over multiple refinances.
Car’s Value
Upon searching more than once for refinancing with extended terms, it often results in owing more than the car’s current value. Moreover, this situation is commonly referred to as being upside down on your car loan.
However, this can pose challenges if you intend to trade or sell your car before completing the payment or if your vehicle experiences operational issues.
Credit Score
Credit inquiries stay on your credit report for up to two years, but their influence on your score is limited to 12 months. However, refinancing multiple times in a short period can result in additional inquiries, which might slightly lower your credit score.
Furthermore, refinancing can influence your account age, although this factor only constitutes about 15 percent of your FICO score.
While there’s no legal mandate for a waiting period before refinancing, it might not be the right financial choice, especially when depreciation is at its highest.
Conclusion
There is no legal restriction on how many times you can refinance a car loan. If you aim to reduce monthly payments over an extended period, pay more interest, or if your credit score has improved, refinancing your car loan can be a financially sensible decision.