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How Soon Can I Refinance My Car?

There has been a lot of talk about refinancing of late. Creditors have been loosening up their lending guidelines, and many people–especially those with damaged credit–are eager to secure a lower rate loan on their vehicle. There really isn’t a rule of thumb on how soon you can refinance your car, as it depends on whether and how your credit and finances have changed since you first applied for financing. Typically it takes 12 months, at minimum, to undergo such changes in your situation. Any sooner, and you may not benefit from refinancing at all. Here are various situations that may be sufficient grounds for a vehicle refi.

Have You Established a Timely Payment History?

One is whether you will actually see a benefit from an attempt to refi. The only reason to refi any loan is a lower rate so that you do not pay as much interest over the life of a loan. With that in mind, what has changed in your credit report that would entice a lender to offer you a lower rate? Has your credit score increased or have you established an on-time payment history? If you’ve been forced to pay a double-digit interest rate due to a history of late payments or “bad credit,” a record of 12 consecutive monthly payments may have sufficient appeal to a new lender. You may have reversed that trend enough to be offered a lower interest rate.

Has Your Credit Score Improved?

In order to receive a lower rate based on your credit score, it must have moved into a new tier. For instance, if your score was 560 when you got your loan, but has now improved to at least 621, you will have moved from bad credit into the subprime category. That move could shave as many as five points off the interest rate that you are offered. The same is true if you move from subprime to prime, etc. Typically, a lender will want to see an upward shift in credit tier prior to approving you. If your score has remained relatively unchanged, you may be offered the same rate you’re already paying.

Have You Corrected Errors on Your Credit Report?

Studies have shown that 40 million Americans have errors on their credit report–that’s 20% of the population! It’s quite possible that you are paying a higher rate of interest than you deserve due to such errors. You can pull your credit report once annually for free at Annual Credit Report. If you’re able to pinpoint, dispute, and thereby remove any such errors, it may be a good time to seek refinancing. You may now be deserving of a better rate.

Even though there is no rule of thumb about refinancing your car, keep in mind that your credit score dips each time your credit report is pulled. If you have recently applied for any type of credit, you will want to wait at least 60 days before attempting to refi a car.

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