Does refinancing start your loan over? Plus, tips to save the most when refinancing.

Refinancing an auto loan means you swap one loan for another. Usually, people refinance to get a better interest rate or lower their monthly payments. Depending on the terms of your new loan, you might be able to effectively start the loan over.

In this guide, we'll explain the basics of refinancing a car loan, including how and when to refinance, and when other options may be a better choice.

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What Is Refinancing?

Refinancing means exchanging your existing car loan for a new one, typically from a different lender. Once you're approved, the new lender issues payment to your existing lender, which replaces your auto loan.

Refinancing an auto loan allows you to get more favorable terms. If you can find an auto lender with lower interest rates than you currently have, you could save a lot of money over the life of the loan.

How Does Refinancing Work?

When you refinance, you take out a new auto loan that pays off your previous one. Refinancing an auto loan requires you to submit a new application, which requires a hard credit check. You'll need to make another down payment and pay loan fees. Your existing lender may also charge a prepayment penalty fee for paying off your original loan early.

Refinancing an auto loan may also affect your credit score by closing an existing account, opening a new account, and adding a hard inquiry to your report. For this reason, it's usually a good idea to review the costs associated with refinancing and check your credit score to ensure that refinancing is a good option for you.

Reasons to Refinance an Auto Loan

Some of the most common reasons to refinance an auto loan include:

• To qualify for a better interest rate: If your credit score has increased or interest rates have gone down since you last applied for an auto loan, refinancing could help you secure a more favorable interest rate.

• To reduce your monthly payments: Refinancing an auto loan can result in lower monthly payments. If you refinance for a longer loan term, you pay what you still owe over a longer period of time. However, remember that this strategy may lead to paying more interest over the duration of your loan.

• To remove a cosigner from the loan: You can refinance if you want to remove a cosigner from your auto loan. You may want to do this if the cosigner's credit score has decreased or if your financial situation has improved enough to get approved on your own.

• To add a cosigner to your loan: Refinancing also allows you to add a cosigner to your auto loan if you don't already have one. This could help reduce your interest rate if the cosigner has an excellent credit score.

Does Refinancing Start a Loan Over?

Refinancing doesn't necessarily start your loan over. Instead, refinancing replaces your existing auto loan with a new one, where you can choose the terms that best fit your needs and budget. For example, if you have 24 months left on your current loan, you could choose a new two-year loan so you don't extend the time until your car is paid off.

However, remember that a shorter loan term usually results in higher payments. A longer-term loan usually has lower monthly installments, but you'll pay more interest and make more payments in total. But if you want to reduce your monthly payments and you don't qualify for a lower interest rate, you can always choose a longer-term loan than you currently have.

How to Refinance an Auto Loan

If you decide that refinancing your auto loan is the best financial decision, here are the steps you should follow:

1. Request a Payoff Quote

Before applying, you'll want to request a payoff quote from your lender. This quote includes all fees the lender charges for paying off your auto loan early. A payoff quote also ensures you're eligible for refinancing. For example, some lenders may not allow you to refinance within the first six months of vehicle ownership.

Reviewing your current interest rate and comparing it against market rates can help you find the most favorable terms.