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Introduction to Auto Refinancing

Last updated Nov 15, 2023

Are you paying too much for your car? For many, it’s their second-largest regular expense (housing being the first). Between car insurance, maintenance, gas, and monthly payments, the average American spends over $800 on their car per month, with car payments taking up a significant percentage of that number.1

Your monthly car payment is the result of several factors, including the amount you initially borrow, your interest rate, and your loan term.2 If your needs have changed since you took out your initial loan, it may be time to look into auto refinancing, or “auto refi.” 

Auto refinancing

What Is Auto Refinancing?

Simply put, auto refinancing means replacing your current car loan with a new one that offers a lower interest rate and/or smaller monthly payments. In doing so you can save on interest, pay your car off faster, and/or free up room in your monthly budget

When Does Refinancing a Car Make Sense?

Auto refi can be a huge financial boost, but it’s a big decision that requires careful thought and planning. It’s also not the right choice for everyone. Here are some situations where auto refi will be most helpful for you. 

  • Your credit score has improved since you bought your car. Your credit score can influence the terms you receive when you apply for any credit product, including car loans. And the difference between the terms can be significant; according to NerdWallet, the average auto loan interest rate is 2.4% for applicants with a credit score of 781 or higher, while the average for applicants with a low score is a staggering 14.76%.3 If your credit score was low when you originally bought your car and is now in the “prime” or “superprime” range (i.e. 658 or higher), refinancing could save you hundreds - or even thousands - in interest over time.
  • You still have years to go on your original car loan. If you refinance your car towards the end of the loan repayment period, you run the risk of extending your loan beyond its original end date. This could cause you to pay more in interest than you would have otherwise, or to owe more on the car than it’s worth. Additionally, lenders usually offer the best and lowest interest rates for newer vehicles, so the older your car is, the smaller your chances are of getting a good deal on your interest rate.4 Refinancing earlier into your loan repayment period can maximize your chances of getting a better rate, avoiding interest hikes, and not extending your loan repayment period.
  • You haven’t applied for new credit in a while. New credit inquiries count for about 10% of your overall credit score, and submitting too many applications at once can have a negative impact on your score that will take a while to fix. If you’ve applied for a separate credit product recently, you may want to give it time before trying to refinance your car. But if it’s been a while since you last applied for new credit, an auto refinancing loan could be a wise use for your next application. 
  • You bought your car with dealer financing. If you financed your car through the dealer you bought it from, they may have added a "markup" to your loan, offering a higher interest rate than you’d receive directly from a lender. While that extra fee might be good for the dealer, it means you pay more – potentially thousands more – in interest over the life of your loan.5 By refinancing through Upgrade, you can cut out the "middle man" which means you may get a lower rate even if your credit score has not significantly improved since first buying your car.

What Are the Benefits of Auto Refi?

If you determine that auto refi is right for you and your situation, you could enjoy these benefits!

  • Pay less in interest. A lower interest rate, even if the drop is small, can drastically reduce what you pay in interest throughout the life of your loan! For example, according to a Credit Karma estimate, if you took a $25,000, 60-month loan at 7% interest and refinanced $20,673 of it with a 48-month loan at a new interest rate of 5%, you’d cut your monthly payment by about $20 and save $2,552 in interest.6 Certain elements, such as having a good credit score and a healthy (i.e. below 40%) debt-to-income ratio, can help you secure a great rate on your new loan
  • Pay your loan off faster. A study from Experian found that the average repayment period for a car loan is 72 months, or roughly six years.7 When you consider that interest accumulates all throughout that time, it can really add up! If the terms of your refinancing include a lower interest rate and/or a larger monthly payment, you can enjoy the peace of mind and savings that come from being out of auto debt earlier. 
  • Reduce your monthly payment. According to Bankrate, the average monthly payment for a new car is $648, while monthly payments for used cars average at just over $500.8 If car payments are eating up your budget, refinancing can lower them and give you a little more wiggle room. Keep in mind that some reduced monthly payments will extend your borrowing period, so you may end up paying more in interest than you would have otherwise. Look for an offer that lowers your monthly bill without extending the term of your loan too much.9

Ready to Refi?

Upgrade’s own auto refi program can help you refinance your car quickly! Make sure your situation fits these parameters, then follow the steps below.

Your car must...Your auto loan must...
Be 10 years old or newer with under 130,000 miles (for sedans or SUVs) or 150,000 miles (for trucks) on itHave an outstanding balance greater than $5,000
Be a personal-use automobileBe at least 3 months old

Please note that RVs, motorcycles, commercial vehicles, and salvage titles do not qualify for auto refi through Upgrade.

How Upgrade’s Auto Refi Works

  1. Apply online at
  2. Follow the onscreen prompts to provide the requested information, create an account, and tell us more about your car and your loan. Our system will verify that your car and loan are both eligible for refinancing. While this will entail a “soft” credit check, it will not affect your credit score.
  3. You’ll receive a list of loan offers you qualify for. Choose the one that works best for you, then follow the onscreen instructions to complete the application.
  4. Once you’ve finished the application, received an answer, and (if approved) accepted an offer, Upgrade will use your loan to directly pay off your current auto loan and obtain your car’s title from your current lender. This may take up to two weeks, so keep an eye on your current loan and make any payments due during that period. If you overpay, your original lender will send you a refund of the overpayment amount.
  5. Once your existing loan is paid off and Upgrade claims ownership of your car title, you’ll make all monthly payments to Upgrade according to the agreement you signed.

We welcome the opportunity to help you rework your car loan to your advantage. Click here to learn more about refinancing an auto loan through Upgrade!

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