Best Banks to Refinance Auto Loans

Few things in life are guaranteed, but you can be sure that your financial situation and the broader economy will change throughout the repayment of your auto loan. Interest rates rise and fall, your income and spending patterns change and your options for repaying your loan will shift, too.

Refinancing your auto loan can help you adapt your debt to fit your changing budget, whether that’s paying it off even earlier and saving money or lowering your monthly payment to something more affordable.

One of the biggest considerations in refinancing is where to get your auto loan. Banks offer many advantages when refinancing your auto loan, but they also have downsides to consider. We’ll share the top banks to refinance auto loans.

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Best banks to refinance auto loans

Refinancing your auto loan can provide significant financial relief by helping you lower monthly payments, reduce interest rates, or modify loan terms.

Below, we have compiled reviews of five top banks to consider for auto loan refinancing and have highlighted their standout features.

*Rate for new autos. (Starting at 6.79% APR for used autos.)

LightStream: Best for good credit

Known for competitive interest rates
Fully online, streamlined loan application
Provides unsecured auto loans

LightStream stands out for its competitive interest rates, making it an optimal choice for borrowers with solid credit history. Its loan process is entirely online with an easy, user-friendly interface.

LightStream also offers unsecured auto loans, a unique feature that eliminates the need for collateral.

Its 0.5% APR discount for automatic payments, Rate Beat program, and no fees or prepayment penalties policy further enhance its appeal.

Bank of America: Best brick-and-mortar bank

Widespread branch network
Rate discounts for current customers
Allows co-applicants

Bank of America (BoA) is a traditional brick-and-mortar option with an extensive network of branches nationwide. Current BoA customers enjoy preferred interest rates, adding value to customer loyalty. The bank also accepts co-applicants, enhancing the chances of loan approval.

Bank of America is an excellent choice for those who prefer in-person service and the convenience of a brick-and-mortar bank. It offers competitive refinancing options, and customers can benefit from the integrated services a large bank can provide

DFCU Financial: Best credit union

Most affordable credit builder loan

Lower interest rates
Membership accessible to the general public
Provides comprehensive financial education resources

Digital Federal Credit Union (DCU), known for its warmer, community-focused approach, stands out among credit unions. DCU offers lower interest rates than many larger banks and extends membership to the general public, not just select groups.

It provides comprehensive financial education resources to help customers make informed choices about their financial journey. Its competitive rates and flexible loan terms make it an excellent option for those looking to lower their monthly payments or shorten their loan duration.

Its straightforward application process and the potential for no down payment required on the refinanced amount further enhance its appeal for borrowers looking for an efficient and cost-effective refinancing solution.

PenFed Credit Union: Best for refinancing a new auto

Low rates on new vehicle refinancing
Minimal fees
Offers loan payment protection

PenFed is an ideal choice for those aiming to refinance a new vehicle. Its competitive rates, minimized fees and inclusive loan protection make PenFed a terrific option. With loan payment protection, borrowers can safeguard themselves from potential financial pitfalls.

PenFed is accessible to a wide audience, requiring only a $5 deposit into a savings account for credit union membership. Its reputation for offering some of the best rates in the market, along with its straightforward eligibility criteria, makes it a strong candidate.

U.S. Bank: Best for current U.S. Bank customers

Discounts for current customers
Wide range of loan options
Convenient mobile app

If you already bank with this lender, it offers several notable rewards. U.S. Bank customers enjoy discounts on auto refinancing rates, adding to its appeal.

It boasts a broad range of loan options, allowing you to tailor a loan to fit your needs. Its convenient mobile app ensures a smooth digital banking experience.

In addition to a rate discount, U.S. Bank customers can take advantage of a streamlined application process and more personalized service due to their relationship.

Ask the expert

Remember that a vehicle is a depreciating asset, which means it loses value each day. If you refinance to extend the loan term, there could be a time when the loan value exceeds the car’s worth. This could cause problems if you are in an accident and the insurance payment is insufficient to pay off the loan. So, when refinancing a loan, I suggest focusing on the lower interest rate and not lengthening the term unless it is critical to do so.

Pros and cons of refinancing your auto loan with a bank

Most people tend to choose either a bank or a credit union when they look for an auto refinance loan. Here’s are the benefits and drawbacks of choosing a bank to refinance an auto loan:

Local service

Banks tend to offer more physical branch locations, as opposed to online-only lenders or credit unions operating in a specific area.
Relationship discounts

Many banks offer rate discounts if you use their other services, such as checking and savings accounts, for your overall banking needs.
No membership restrictions

Banks are for-profit companies open to working with anyone who qualifies, unlike credit unions that limit membership to certain people.

More expensive

Banks charged almost a full percentage point more on used car loans than credit unions at the end of 2023. Meanwhile, online lenders frequently offer lower rates than banks because they don’t have the expensive upkeep of maintaining physical locations and staff.
Steeper requirements

You’ll usually need a slightly higher credit score to qualify for a bank loan.

If you have a good-to-great credit score and a relationship with a local bank, you may prefer having a location to go to, even if it’s a higher interest rate. Customer experience may trump any additional expenses.

Should I refinance my auto loan?

People refinance their auto loans for many different reasons. Depending on your qualifications and how you structure your loan, you may be able to:

Save money on interest
Pay off your loan sooner
Switch to a better lender
Lower your monthly payment
Borrow money against your car’s equity

You won’t be able to do all those things at once—that’s where it’s important to be very clear on your main reason for wanting to refinance your auto loan.

If you want a smaller payment, for example, refinancing for a longer term can help—but that often translates into a higher overall loan cost. That’s because lenders typically charge higher refinance rates for longer-term loans, which you’ll also be paying for an extended period of time.

The best way to compare your short-term and long-term savings is to use an auto loan refinance calculator.

How does refinancing an auto loan affect my credit score?

Refinancing your auto loan will impact your credit score, and it’s important to consider this. That’s especially true if you have any plans to apply for credit in the future, such as a rewards credit card or a home loan.

People generally see a small drop in their credit score after they submit their application to banks to refinance auto loans. That’s because the bank performs a hard credit check, and according to FICO, most people only see a small drop of five points or less, lasting about a year.

Once you complete your auto loan refinance, it could go either way. Adding an auto loan onto your credit report may help improve your credit mix, which makes up about 10% of your credit score. However, your payment history has a bigger influence, accounting for over a third of your score.

If you miss any payments, it could damage your credit score. But if you make every payment on time (tip: sign up for autopay), it’ll only help your credit score grow.

A benefit to refinancing an auto loan is interest rate savings that can be directed to an emergency fund, retirement account, or towards funding another financial or life goal. A drawback would be the temporary reduction in your credit score.

How to choose the best bank to refinance your auto loan

Every bank is unique and may offer different rates and terms, have different qualifications, and—ultimately—influence whether you have a good experience in refinancing your car loan. Here’s how to make the most of it:

Get ready: Get a copy of your three credit reports and make sure everything looks legit. If not, you have time now to fix any errors. Check your credit score too. Finally, gather recent copies of financial documents you’ll need, including pay stubs, bank statements, auto loan statements, and copies of your ID.
Gather quotes: Get prequalified with as many banks as you can. Ensure they do a “soft” credit inquiry so it doesn’t affect your credit score. Don’t limit yourself to just banks, either—make sure to check with credit unions and online lenders, too.
Research top options: Choose the cheapest quotes and look into those lenders further. Read customer reviews online, check for recent lawsuits, and consult government complaint databases. Look for any special perks or discounts the lender offers, too.
Apply for the loan: Swing to your top lender pick and submit a full loan application. You’ll need to include more details and wait to see if you’re approved.

If everything goes well, you’ll be approved by one of the best banks to refinance auto loans. After that, your new lender will send the funds to your old lender to pay off the loan. This can take some time, so keep paying your old loan until the coast is clear.

Remember to sign up for autopay with your new loan. In time, it’ll help you build credit, avoid late fees and credit damage, and you’ll own your car free and clear before you know it.