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AUTOS
How Many Times Can You Refinance a Car Loan?
EXPECTED READ TIME:7 minutes
March 18, 2022
If you’ve ever refinanced a car loan to lower your monthly payment, you probably wondered if doing it again would reduce your bill even more.
It can, if circumstances are right, but there comes a point where repeatedly refinancing your vehicle won’t produce enough savings to make it worth your while. That’s auto financing’s version of diminishing returns.
So, before setting out to test economic theory by renewing your car loan multiple times, keep the following insights in mind.
Can You Refinance Your Car Loan Multiple Times?
Yes, you’re allowed to refinance your car loan multiple times. In fact, if you can find a lender willing to loan you the money, there’s no legal limit on how often you can replace your current auto loan with a new one.
But don’t get too excited.
Many traditional financial institutions like credit unions and banks view repeated attempts to refinance as a sign that you’re relying too heavily on debt. The way they see it, you’re more likely to default on your loan, so they’re less inclined to lend you the money.
If a lender does agree to refinance your vehicle again, they’ll likely charge higher interest rates to protect themselves from potential losses.
Pros and Cons of Refinancing Your Car Loan Multiple Times
By and large, the pros of refinancing your auto loan a second (or third or fourth) time mirror the advantages of first-time refinancing. Common benefits include:
Pro: Lower Monthly Payments
If you’re serious about refinancing your car loan again, you’re probably trying to reduce your monthly payment. Securing a better interest rate or extending your term are means to the same end, but the first approach allows you to save money in the short and long term.
The primary goal of refinancing your auto loan should be to pay less total interest.
Pro: Greater Interest Savings
Whether you do it one time or many, the primary goal of refinancing your auto loan should be to pay less total interest. You can do this by locking in a lower interest rate or shortening the length of your loan — or a combination of both.
Pro: Improved Cash Flow
Lowering your car payment by refinancing multiple times may help to free up money in your budget each month. Ideally, you’d use the extra cash to pay down high-interest debt, build up your emergency fund, save for college, or start a retirement fund.
Lowering your car payment by refinancing multiple times may help to free up money in your budget each month.
Pro: Better Loan Terms
Refinancing your car more than once may allow you to adjust the length of time you have to repay what you borrow, which is known as your loan term. Depending on your situation, you could shorten or extend your term — whichever helps you stay on track with your budget.
Although refinancing your car loan repeatedly has its upside, there are a number of disadvantages to consider as well. Cons typically include:
Con: Potential Fees and Penalties
Some lenders assess a prepayment penalty if you pay off your loan early, which is what you’re doing each time you refinance. These charges, combined with title transfer fees, closing costs, and other expenses you might incur, lessen the savings you stand to realize by refinancing.
Con: Higher Overall Cost
Interest adds up quickly, so the more times you renew your loan, the more interest you’ll pay before you start to make a dent in the loan principal. That means the overall cost of your vehicle will be much higher than amount you initially borrowed.
Con: Longer Payoff Period
Each time you refinance your auto loan, you’re hitting the reset button on the payoff period. This may be fine if you plan to drive your vehicle until the wheels fall off, just bear in mind that you’re also postponing the day until you finally own your car or truck outright.
The more times you renew your loan, the more interest you’ll pay before you start to make a dent in the loan principal.
Con: Depreciation and Value Issues
When you refinance your car loan numerous times, you increase the chances you’ll get upside down in your loan. Owing more than the vehicle is worth is a recipe for disaster, particularly if something happens to the car and it’s no longer drivable — you’re still on the hook.
Con: Additional Lending Stipulations
Before agreeing to refinance your vehicle more than once, the lender will likely require the car or truck to meet more stringent criteria than with your initial loan or first refinance. Generally, this means the vehicle will need to:
- Have fewer than 150,00 miles
- Be less than 10 years old
- Be worth more than the balance of your loan
Meanwhile, you’ll need to be current on your existing loan payments and have a good credit score to get the best rates and terms.
| Advantages | Disadvantages |
|---|---|
| Lower monthly payments | Possible penalties and fees |
| Potential savings on interest | Higher overall cost of ownership |
| Improved monthly cash flow | Longer payoff period |
| Better loan terms | Potential to owe more than the car is worth |
| More criteria to qualify for refinancing |
Three Reasons to Refinance Your Car More Than Once
As with most things in life, you need a compelling reason to refinance your auto loan more than once. Here are three instances when it might be worth the effort:
- You can lower your interest rate. Whether it’s because your credit has improved or rates in general have dropped — or both — if you can get a better interest rate on your loan by refinancing yet again, you should seriously consider doing it.
- You can reduce your monthly payment. As long as it doesn’t become a (perpetually) recurring event, there’s some merit to renewing your already refinanced auto loan so you have more cash left each month to use for other needs and expenses.
- You can shorten your payoff period. Any opportunity to get rid of debt more quickly — especially the kind that’s considered “bad” debt — is worth exploring, provided reducing the time you have to repay your loan doesn’t put you in a financial bind.
Scenarios aside, you shouldn’t rely solely on gut feelings or what someone else tells you to decide if potential savings warrant another refinance. Use an auto refinance calculator to understand how different loan amounts, interest rates, and terms will impact your payments.
Any opportunity to get rid of debt more quickly — especially the kind that’s considered “bad” debt — is worth exploring.
Alternatives to Refinancing…Again
If you’re still not certain that refinancing your auto loan multiple times is the best route for you, you can always explore other options. Three viable alternatives include:
Sticking With Your Current Loan
The road isn’t necessarily smoother on the other side of another auto loan refinance. Unless you can substantially lower your monthly payment or save considerably on interest over the life of a new loan, you may be better served seeing your current agreement through to payoff.
No payment or a smaller, more affordable loan beats struggling to pay your bills any day of the week (or month).
Paying Off Your Loan Early
If your primary goal for multiple refinances is to save on total interest charges, consider paying off your existing loan early instead. Regardless of the strategy you use, accelerating your repayment schedule can reduce what you’d ultimately pay in interest.
Buying a Less Expensive Vehicle
While selling your car may not be top of mind, it’s worth some thought if you can make enough to pay off your current loan and buy a less expensive vehicle. No payment or a smaller, more affordable loan beats struggling to pay your bills any day of the week (or month).
The Takeaway
Refinancing your car more than once can leave you with more cash to stash at the end of each month or over the life of your loan. Perhaps even both, if the situation is right.
The key is to assess the situation with a clear eye toward optimizing your returns — if you can be sure potential savings will outpace predictable costs once you swap loans, go for it. If you’re not sure, consider waiting.
And remember, you can refinance pretty much any time the conditions are right, so if now isn’t the time, be sure to keep this guide handy for the future.
