When you refinance your car, you replace an existing loan with a new one. The proceeds from the new loan repay and retire the old one. The old loan is marked as paid on your credit report after the new loan is added. When you refinance, the new loan may differ from the old one in terms of the loan amount, interest rate, term, and monthly payment amount. This is true even if the lender is the same. An annual percentage rate reduction of 1 percentage point is widely considered to be the minimum for refinancing. For example, suppose your current auto loan has the following characteristics: Balance left on loan: $10,000 Current interest rate: 4.5% Remaining loan term: 4 years Current monthly payment: $300 Using an online calculator, if you refinance at 3.5% for four years, your monthly payment will fall $76.44 to $223.56. Currently, the best car loan interest rates are hovering around 2%, but if you have bad credit, you will have to pay more. In general, if you save money after figuring in fees, and there are no prepayment penalties, then it makes sense to auto loan refinance your car.