Clark Howard’s Simple Rule for Refinancing an Auto Loan

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Do you have an auto loan with an interest rate that you wish were lower?

Refinancing your auto loan is a great way to lower your monthly bills, and the process is much easier than you may think.

Money expert Clark Howard says that nearly everyone with a car loan should consider refinancing because it could be a quick way to save some cash.

“Auto refinancing is such an interesting thing because almost nobody ever refinances a car loan, but overwhelmingly most people could benefit from refinancing a car loan.”

In this article, I’ll walk you through Clark’s rule for knowing when you should look into adjusting your auto loan, and I’ll share some tips for getting the process started.

Clark’s Simple Rule: How To Know if You Should Refinance Your Auto Loan

Refinancing an auto loan is so easy and straightforward that Clark says most people should at least explore the idea — especially if interest rates are low.

Here is Clark’s basic rule of thumb for determining if you’re a candidate for an auto refinance:

If you can qualify for an interest rate that is lower than the rate on your existing auto loan, you should move forward with refinancing as long as you do not extend the term of your loan.

If you do refinance, you’ll likely see monthly savings immediately.

Unlike mortgage refinancing, which requires a break-even period for paying back the fees you paid to get the new loan, there should be no fees to get a new auto loan.

“The neat thing about refinancing an automobile is that there is no payback period. You save money from the first month when you refinance a car loan,” Clark says. “And what I’ve experienced over the years is that people are just shocked by that. Many didn’t even know you can do that.”

Like most things in your financial life, there are some caveats and nuances to this rule.


I asked Clark to talk about things you may encounter in your search for the best auto loan rate. My hope is that his answers will help you find the best financial solution for your particular situation.

Clark’s 3 Things To Consider for Refinancing Your Auto Loan

Are you ready to assess your auto loan to see if it fits Clark’s rule for refinancing?

Here are the things Clark says you need to be thinking about:

1. An Ideal Refinance Should Both Lower Your Payment AND Shorten Your Term

We’re all about lower monthly payments here at, but we want to make sure that you’re doing it the right way.

While it might help your monthly budget to refinance a 60-month loan into a new 84-month loan, pushing out the payoff date is actually a poor decision.

Cars depreciate in value, and you don’t want to still owe money on a vehicle when it comes time to trade it in. If you hold onto your cars for a long time (and good for you if you do), you know that, toward the end of your vehicle’s life, there are going to be some repair bills. You really don’t want to have a car payment at that point.

Clark says that any refinance for an auto loan should both lower your monthly payment (by way of an interest rate reduction) and shorten the period of time until you’ve paid off the debt.

“The key is that you go into a new loan term that is equal to or shorter than your existing loan,” Clark says. “Even with low rates, there is no advantage to carrying a long-term auto loan.”

Let’s say that you bought a new vehicle for $30,000 six months ago. You took out a 72-month loan at an interest rate of 9%. Now you have 66 payments of $540.77 remaining with a balance of approximately $28,069.

If you refinance into a 60-month loan at a 3% interest rate at your local credit union, you’ll be able to lower your monthly payment to $504.37 and still pay off your loan six months sooner!

2. Upside Down? Your Current Loan May Present a Common Refinance Stumbling Block

Clark says that the biggest stumbling block people may face in refinancing their car loan is that they may have financed too much of the purchase.


This can happen in a number of different ways. You may have just plain paid too much for the car, or it may have depreciated in value more quickly than you’ve been able to make the payments.

No matter the path, the end result is that you’re “upside-down” on your loan: You owe more on the loan than your automobile is worth.

And that does present a hurdle to refinancing your auto loan.

“Unless you can buy down the balance on the existing loan to the level at which the new lender will value the vehicle, you cannot refi,” Clark says.

But Clark says, if you can afford to buy down the balance and still meet his rules for refinancing an auto loan, you should go for it.

3. Credit Unions Are the Place To Shop for Auto Loan Refinances

Clark says that, with some rare exceptions, your search for a refinanced auto loan should begin and end at a credit union.

Clark says they’re most likely to have the best interest rates, and they’re more likely than a bank to accept you as a customer for this type of loan.

“Credit unions almost always are going to be the cheapest place,” Clark says. “Credit unions tend to use a sliding scale to find a loan for you. You have to really, really have horrendous credit for them to just flat turn you down.”

The factors used for that scale, which ultimately determines what interest rate they offer you, can include things such as your credit score, the loan amount, desired loan length, age of the vehicle and your payment history.

Clark says just a couple of quotes from different credit unions should be sufficient.

If you’re not able to access a credit union, Clark recommends checking your eligibility for USAA membership. They offer competitive auto loan rates as well.

Clark says many USAA members are also eligible to join one of the military credit unions such as Navy Federal. He suggests comparing the rates between both if you’re eligible.


“The one place you never want to do the refinance of a car loan is at a bank, Clark says. “The banks charge so much higher interest rates than credit unions on vehicle loans.”

Final Thoughts

Refinancing your auto loan may be a quick and easy way to lower your monthly bills.

Just make sure that you’re not lengthening the term of your loan in the process. That way you can stay on track to rid yourself of a monthly car payment as soon as possible.

Clark says that you’ll probably get the best interest rate at a credit union. He is a member at Navy Federal, but you can also find great rates at a local credit union in your community.

Clark hopes that your long-term takeaway from this refinancing experience prepares you for the next vehicle you buy.

“Since it’s so clear how much cheaper it is to refinance out of a dealer loan and into a credit union loan, please remember when you’re purchasing a car that you should always get your financing in advance from your credit union,” Clark says. “Next time you’re going to save money from the start. And it can be thousands of dollars over the life of the loan!”

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