Find Out How Long It Takes To Refinance a Car Loan

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How Long It Takes To Refinance a Car Loan?Owaki/Kulla – Getty Images

Refinancing a car loan can take anywhere from a few hours to a couple of weeks. This means that if you took a loan from the dealership because it was convenient, but it turned out to be a mistake, you can apply for a new loan as soon as you drive off the lot. The average car payment for a loan in the US is $716 for a new car and $526 for a used model.

With over 80% of buyers choosing to finance their purchases, many are looking for the best rates and terms. If that sounds like you, you’re going to want to learn as much as you can about the process, including how long refinancing the loan on your vehicle will take.

Looking to refinance? Easily compare rates from lenders below.

While it’s true that you can refinance your car loan whenever you want, rushing the process will not improve your chances of approval. Wait times can vary based on factors such as how long it takes you to collect your documents or the bank’s hold time for releasing funds.

While every step of the process can cause a delay, in this article, our expert automotive journalists show you the ins and outs of refinancing and give your tips to speed up the process.

How Can You Speed ​​Up the Auto Refinancing Process?

If you’re wondering how long it takes to refinance a car loan, you’re not alone. Drivers refinanced a whopping 2.1 million car loans during the first half of 2021. According to Rate Genius, people save an average of $1,158 annually.

With statistics like that, it’s easy to see why you might want to follow their lead. Of course, your loan processing time will vary depending on which bank you choose to work with. But is there any way to make the auto refinancing process go faster? Yes, as it turns out. Here are a few tips to follow:

Have Your Documents Ready

Getting organized in advance will speed up the refinancing process. Most lenders require copies of standard documents, so gather the following items together before you apply:

  • Driver’s license.

  • Proof of income.

  • Odometer reading.

  • Proof of insurance.

  • Vehicle registration.

  • Proof of residency.

  • Vehicle title.

Be Honest on Your Application

Fudging sections of your application, such as your employment status, won’t increase your chances of approval. In fact, discrepancies, missing information, or outright lies can delay the process, cause a lender to deny your loan, or even result in criminal fraud charges.

Respond to Your Bank’s Requests Promptly

There may be occasions during the approval process when your lender needs additional information. You must respond to these requests quickly. Providing missing documents or returning a phone call the same day you receive them will make the process go faster and smoother.

Know Your Credit File

If your credit score is less than 600, be prepared to explain any negative items on your report. For example, if you were ill, went through a divorce, or were laid off from your job and your credit suffered, let your bank’s loan agent know. Be honest because the loan processor wants your business, and it’s their job to get you approved.

Reasons to Consider Refinancing

Another important question about car loan refinancing is whether it’s worth the effort. Despite any possible wait times, there are some reasons you may want to consider refinancing your loan.

If you recently bought your car, you may find that your payment is too high, the interest rate isn’t competitive, or you’re simply unhappy with your lender’s performance. Here are a few circumstances in which you may want to refinance:

You Got a Bad Loan

When you’re sitting in the hot seat in front of the dealership’s finance manager, it’s easy to miss the big picture and agree to a loan that doesn’t work for you in the long run. Whether the interest rate is too high or the term is too long — or too short — it may be a wise financial decision to apply for a new one.

If you can find a car loan that beats your current rate, go for it, particularly if rates are declining or your dealership padded the quoted rate to boost their profits.

Your Credit Score Has Gone Up

Buying a new car with a loan will improve your credit score as long as you make payments on time. Even after just 60 days, it’s possible to see a nice uptick in your rating. You may qualify for a lower interest rate with your new, improved credit score.

You’re Struggling to Make Your Payments

Refinancing may be a sound financial decision if you consistently come up short on your payment, especially during the first 12 months of your loan. Check with your current lender first. They may be willing to extend new terms, such as a lower interest rate or a longer period to pay.

For example, extending the length of your loan from 24 to 36 months will reduce your monthly payment amount. Just remember that this strategy will also result in additional interest that you’ll need to pay over the life of your loan. Consider making extra payments whenever possible to reduce your principal balance sooner.

Drawbacks of Refinancing Your Loan

Even if rates have gone down or your credit has improved, there may be some drawbacks to refinancing your debt, especially early in your term.

You want to avoid doing anything that could adversely affect your financial well-being, so consider these potential drawbacks before refinancing your auto loan:

Failing to Qualify

When you apply for a loan, whether it’s a new debt or you’re refinancing your car, you risk getting denied. Even if you get approved, you may not benefit from the process, either because you already have the lowest APR or you don’t meet the lender’s criteria for a top-tier interest rate.

Early Payoff Penalties

Another important question is whether you should pay off your car early or not. Check with your bank to see if it has any prepayment penalties. Some contracts allow lenders to charge you fees if you close your account before the term expires.

They don’t want you to take your business to another bank because they’ll likely lose money on the deal. If yours does charge fees, the benefits of a refinance may not outweigh this charge.

Changes to Your Credit Score

Whenever you apply for a loan, even a refinance, the lender will usually start the process by checking your credit report. Unfortunately, this step puts a hard inquiry on your file, which causes your score to drop, at least for a while.

However, don’t let the fear that refinancing will hurt your credit score stop you from shopping around.

Because credit reporting agencies understand you may have to apply with more than one bank to get the best loan, any hard inquiries made within a 14-day window are treated as one instance.

Many lenders will also do a “soft pull” to give you a preapproval, which doesn’t impact your credit report. This allows you to see if the rates will make it worth your while to make a full application.

Can You Refinance a Car With the Same Lender?

What if you love your bank but just want a better interest rate? Can you refinance your car with the same lender? The answer is yes. Many creditors will let you refinance your existing loan.

However, others won’t, especially if your vehicle is in poor mechanical or physical condition, has a low loan-to-value ratio, or your current loan term is nearly up. If you do accept an offer from your current lender, you’ll still want to compare it with other banks to ensure you get the best deal.

How to Refinance Your Car Loan

Refinancing a car loan is similar to the process you go through when applying for any other type of credit. However, because another lender is already using your car as collateral, there’s an extra step or two. So here’s how to refinance your car loan:

  1. Review your current loans: Use an auto loan calculator to compare your current payments with possible refinance options to get the best deal.

  2. Check your credit score: The higher your credit score and the better your payment history, the lower the interest rate a lender is likely to offer.

  3. Know your car’s value: Knowing your car’s market value is important because if it isn’t worth much, it could be hard to get approved. You also want to know if your loan amount is higher than the car’s value. In this case, you may not want to proceed with refinancing.

  4. Shop around: Interest rates vary by lender, so you’ll want to shop around for the best deal, starting with your current creditor, as they may offer you a discount to stay.

  5. Gather your paperwork: When you apply, plan to provide the lender with your documents quickly.

Now you know it only takes hours or weeks to refinance your car loan, will you take your chances and apply? Before you do, remember that any new credit accounts can significantly impact your finances.

So take the time to research interest rates and compare any new terms with your current loan. With diligence and patience, switching lenders may help you reduce your monthly payments.

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