Short answer: refinancing replaces your car loan with a new one. A lower rate over the same or a shorter time can cut what you pay in total. A longer term can lower the monthly payment but add interest. Before you refinance, get the payoff amount on your current loan, check your contract for a prepayment penalty, and compare the total of payments on each offer. This is general information, not legal or financial advice.
What the CFPB says about refinancing
The CFPB says you can “talk with different lenders about refinancing your existing loan to get a lower interest rate or to spread out your payments over more time. Keep in mind, though, a longer loan term may mean cheaper monthly payments but more interest over the life of your loan” (CFPB, page last modified September 14, 2023, which may be outdated, read October 30, 2026).
Payoff amount and prepayment penalties
The CFPB says: “When you refinance, however, you must prepay the original loan in full. You may incur a fee if you have a prepayment penalty in your current agreement”. It adds that your contract and the law where you live decide whether you can pay off an auto loan early without a penalty (CFPB, page last modified January 30, 2024, read October 30, 2026).
Your Truth in Lending disclosures show this. For a loan whose finance charge is figured by applying a rate to the unpaid balance, Regulation Z requires “a statement indicating whether or not a charge may be imposed for paying all or part of a loan’s principal balance before the date on which the principal is due” (12 CFR 1026.18(k)(1), eCFR, text up to date as of October 28, 2026, read October 30, 2026).
The amount needed to close the loan is the payoff amount, not the balance on your statement. The CFPB says the payoff amount “might be different from the outstanding balance listed on your statement or coupon book because of the way interest is calculated, any outstanding late fees or charges, or for another reason” (CFPB, page last modified September 14, 2023, which may be outdated, read October 30, 2026). See loan payoff amount vs balance.
If you owe more than the car is worth
The CFPB calls owing more than the trade-in value “negative equity”, and says rolling an existing balance into a new loan “will increase your total loan costs and the interest you’ll pay over the life of your loan” (CFPB). Example only for the math: if you owe $20,000.00 and the car is worth $17,000.00 (example figures), the gap is $3,000.00. The sources cited here do not say whether a lender will refinance a loan that is larger than the car’s value. Ask each lender.
A $20,000 balance, only for the math
This example is only for the math, not a quote from any lender. It assumes a $20,000 payoff amount, no fees and no prepayment penalty. The refinance rates are the Federal Reserve’s August 2026 averages for new car loans at commercial banks: 7.54% for 60 months and 7.17% for 72 months (G.19). G.19 does not report a 48-month rate, so the 48-month row uses the 60-month average only for the math. The current loan rate of 10.54% is an example figure, 3 points above the 60-month average.
| Option | Monthly payment | Interest | Total paid |
|---|---|---|---|
| Keep the loan: 48 months left at 10.54% (example) | $512.45 | $4,597.60 | $24,597.60 |
| Refinance: 48 months at 7.54% | $483.95 | $3,229.60 | $23,229.60 |
| Refinance: 72 months at 7.17% | $342.62 | $4,668.64 | $24,668.64 |
$512.45 x 48 = $24,597.60, $483.95 x 48 = $23,229.60, and $342.62 x 72 = $24,668.64. On these assumptions, refinancing at the lower rate for the same 48 months saves $1,368.00 in total. Stretching to 72 months gives the lowest monthly payment but costs $71.04 more in total than keeping the current loan. Fees and a prepayment penalty would reduce any savings. Your rate depends on your credit, the car and the lender.
Questions to ask
- Current lender: what is my payoff amount, and on what date is it good through?
- Current lender: does my contract have a prepayment penalty?
- New lender: what is the APR, the term, the finance charge and the total of payments?
- New lender: are there fees, such as an origination fee or a title or lien fee?
- New lender: will you refinance if I owe more than the car is worth?
- Are any add-ons, such as GAP or a service contract, in the new amount financed? Can I remove them?
If your goal is a lower payment because you are behind, see behind on car payments: repossession and options. To compare an auto loan with an unsecured loan, see personal loan vs auto loan for a car.
Checklist
- Get the payoff amount from your current lender.
- Check your contract and disclosures for a prepayment penalty.
- Get written offers from more than one lender.
- Compare the total of payments, not only the monthly payment.
- Ask your current lender to confirm in writing that the old loan is paid off.
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Sources
- CFPB: What should I do if I can't make my car payments? (last reviewed September 12, 2023)
- CFPB: Can I prepay my loan at any time without penalty?
- CFPB: Should I trade in my car if it’s not paid off? (page last modified September 14, 2023)
- eCFR: 12 CFR 1026.18, Content of disclosures (Regulation Z), current text up to date as of October 28, 2026
- Federal Reserve: G.19 Consumer Credit (released October 7, 2026), terms of credit, August 2026: commercial bank new car loans (60 and 72 months) and 24-month personal loans
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.