When and How to Refinance Your Auto Loan
Already have an auto loan but struggling with high payments or interest rates? Refinancing might be the solution. Here's everything Ontario drivers need to know.
Good News for Bad Credit Borrowers
Even if you started with bad credit, making consistent payments for 6-12 months can improve your creditworthiness enough to qualify for better rates through refinancing.
What Is Auto Loan Refinancing?
Auto loan refinancing means replacing your current loan with a new one, typically with better terms. The new lender pays off your existing loan, and you start making payments to them instead.
How Refinancing Works:
- You apply for a new loan with a different lender
- The new lender evaluates your current credit and payment history
- If approved, they pay off your existing loan balance
- You begin making payments under the new loan terms
- Your old lender releases the lien on your vehicle
- The new lender becomes the lienholder
When to Consider Refinancing
Refinancing makes sense in several situations:
Your Credit Has Improved
If your credit score has increased by 50+ points since you got your original loan, you likely qualify for better rates.
Example: Original score 580, current score 650+ = potential for significant savings
Interest Rates Have Dropped
Even if your credit hasn't changed, market rates may have improved since you first financed.
You Need Lower Monthly Payments
Extending the loan term can reduce monthly payments, though you'll pay more interest overall.
You Want to Pay Off the Loan Faster
A lower interest rate with the same payment amount means more money goes toward principal.
Calculate Your Potential Savings
Here's how to determine if refinancing makes financial sense:
Refinancing Calculator Example
Current Loan
- • Remaining balance: $20,000
- • Interest rate: 18%
- • Monthly payment: $485
- • 48 months remaining
- • Total interest: $3,280
Refinanced Loan
- • Loan amount: $20,000
- • Interest rate: 12%
- • Monthly payment: $430
- • Term: 48 months
- • Total interest: $1,640
Potential Savings: $55/month • $1,640 total interest savings
Refinancing Requirements
Lenders typically have these requirements for auto loan refinancing:
Vehicle Requirements
- • Usually 10 years old or newer
- • Under 200,000 km
- • Minimum value of $5,000-$10,000
- • Clean title (no salvage/flood history)
Borrower Requirements
- • Current on existing loan payments
- • Stable income and employment
- • Debt-to-income ratio under 40-50%
- • No recent bankruptcies or repos
Step-by-Step Refinancing Process
Check Your Current Loan Details
Find your current balance, interest rate, monthly payment, and payoff amount. Check for any prepayment penalties.
Check Your Credit Score
Get your free credit score from Credit Karma, Borrowell, or your bank to see if it has improved.
Shop Around for Rates
Apply with multiple lenders within a 14-day window to minimize credit impact. Compare banks, credit unions, and online lenders.
Compare Total Costs
Don't just look at monthly payments. Calculate total interest and any fees to find the best deal overall.
Complete the Application
Submit your application with required documents. The new lender will handle paying off your old loan.
Potential Drawbacks to Consider
Things to Watch Out For
Best Lenders for Refinancing in Ontario
Traditional Banks
- • RBC, TD, Scotia, BMO
- • Best rates for good credit
- • Existing customer perks
Best for: Credit scores 650+
Credit Unions
- • Often better rates than banks
- • More flexible requirements
- • Personal service
Best for: Members with fair credit
Online Lenders
- • Fast approval process
- • Competitive rates
- • Convenient application
Best for: Quick decisions
Specialized Lenders
- • Work with bad credit
- • More flexible terms
- • Higher rates but accessible
Best for: Credit challenges
Ready to Explore Refinancing?
Lower Your Payments Today
Don't stay stuck with high-interest payments if your situation has improved. We work with multiple lenders who specialize in refinancing for Ontario drivers, even those with credit challenges. See if you qualify for better terms.