How Many Times Can You Refinance a Car Loan?

One of the ways to avoid defaulting on your car loan is by finding refinancing opportunities. This allows borrowers to get a new loan which can be used to repay the previous car loan. Typically, borrowers try to find refinancing options if they cannot afford to pay the monthly or bimonthly car loan repayments. However, a big question that comes up is, how many times can one refinance a car loan. In this article we learn all about that, and more.

Repeated Refinancing Of A Car Loan

To answer the age-old question of what is the limit for refinancing a car loan, the short answer is that the loan can technically be refinanced as many times as the borrower wants. There is no legal limitation to how many times a person can refinance their car loan. However, there is more to refinancing a car loan unlimited times which needs to be taken into consideration by the borrower. 

Some important considerations which the borrower must take into account include financial suitability, lender availability, and scope of penalties.

Financial Suitability

The primary consideration that a borrower needs to think about before choosing to refinance the car loan is whether it makes financial sense or not. To assess this, it is vital to consider elements like refinancing fees, interest rates for the new loan, term of repayment, and how much you will end up paying.

Also read: What Happens If I Don’t Pay My Car Loan?

If the charges and fees are high, and the interest rate is high, you will probably end up spending more than you would if you did not choose to refinance. In this case, it would not make sense to get the loan refinanced.

Lender Availability

Usually, when a borrower is looking to refinance their car loan, they will have to find a new lender for the loan because not many lenders enter into refinancing agreements with existing customers.

This is an additional task which the borrowers would have to undertake, which will include comparing multiple potential lenders and negotiating terms several times to get suitable offers. It might also in some instances prove to be a wanted effort if you end up not finding any favorable deals.

Penalties

At times, when you refinance a loan, the original loan is paid off in one go or a major chunk of it is paid off together, irrespective of how many installments are left. In such cases, the borrower needs to be sure whether or not this will play in their favor.

This is because certain lenders may impose a prepayment penalty. Although it may seem suitable to the borrower, lenders do not prefer this because it means lesser interest earnings for them. In turn, to prevent early payments, they often place policies for penalizing them. As such, the borrower must be sure of any such terms, and find suitable refinancing options.

When To Choose Refinancing

As attractive as it might appear, refinancing a car loan may not always be the best choice for every borrower. It is thus essential to know when the option to refinance the loan is beneficial, and when it is not. Here we will discuss some scenarios where refinancing is suitable, and some where they are not.

When Is Refinancing Good

If any of the following factors are true in your situation, choosing to refinance your loan will be a good idea:

• Option Of Reducing Monthly Payments: Consider the following situation:

As the borrower, your financial situation has altered, and you cannot any longer afford the predetermined monthly payments for your car loan. In this case, you can find refinancing options which provide you a loan that needs to be paid back at lower monthly payments which are affordable for you.

Also read: Can You Refinance a Car Loan More Than Once?

In such circumstances, refinancing is a good idea.

• Minimized Interest: The rate of interest that is offered to a loan borrower depends on their credit score. So, if the borrower’s credit score has improved since obtaining the car loan, and they are able to secure a loan at a lower interest rate, it might be beneficial for them to refinance their car loan. This enables them to save money on interest payments.
• Wanting To Change Lender: Some lenders can be problematic, leading the borrower to want to change to a different lender. If this is the case, you can try to find a more suitable lender for your loan and refinance the original loan. This will allow you to get rid of the original lender and deal with the new lender.

When Is Refinancing Not A Good Idea

If, on the other hand, any of the following situations apply to you, you may not want to seek refinancing:

• Your Car Is Old: Securing a loan for an old car is tough as it is. Seeking refinancing is nearly impossible. For vehicles which are over 10 years old, lenders are not willing to offer any loans. As such, if this is true for you, you may want to find other alternatives to deal with the inability to repay the loan.
• Penalties: If your original lender has policies that are not favorable for early payments of the loan, it would be unwise to seek a refinancing option. Typically, penalties imposed for prepayments can be quite high, rendering it quite useless to seek another lender. There would be no financial gain that you may get from refinancing such a loan.
• Origination Fees: A lot of loans come with hefty origination fees. When weighing refinancing options, it is only wise to check whether there is a loan origination fee, and how much it is. If the origination fee exists, or is high, the point of refinancing for financial gain holds no value. You end up paying that much amount (or perhaps more) as origination fee, and do not save anything.

Conclusion

Refinancing a car loan has its own set of advantages and disadvantages which differently apply to different borrowers. If this option works for someone, it does not mean that it would work for you too. As such, it is essential to evaluate its suitability for your own circumstances before opting for it.