My Credit Score Has Improved. Should I Refinance My Car or Trade It In?

By Adam Pirman, Sales Manager at Apple Chevrolet

One of the conversations I enjoy having with customers is when someone comes back to the dealership and tells me their credit has improved since purchasing their last vehicle.

Maybe they purchased a car a year or two ago when their credit wasn’t where they wanted it to be. Maybe they were just starting to establish credit, had a limited credit history, or were rebuilding after some financial challenges.

At the time, they were approved for financing, but their interest rate was higher than they would have liked.

Now they’ve made their payments on time, reduced some debt, and watched their credit score improve.

Naturally, their next question is:

“My credit is better now. Should I refinance my current vehicle or trade it in for something newer?”

After more than 18 years in the automotive industry, I’ve had this conversation with customers in many different situations.

The answer isn’t always to trade your vehicle, and it isn’t always to refinance.

The right decision depends on your current interest rate, how much you owe, what your vehicle is worth, and what you’re trying to accomplish.

Here’s how I explain it to customers at Apple Chevrolet.

How Long Should I Wait Before Refinancing My Vehicle?

One of the biggest misconceptions is that you have to wait a certain number of years before refinancing an auto loan.

That’s not necessarily true.

In many cases, refinancing may be possible after you’ve established a payment history and your original loan has been properly processed.

Some lenders have minimum requirements regarding how long the loan has been open, how many payments you’ve made, the remaining balance, or the age and mileage of the vehicle.

But there isn’t one universal waiting period.

My advice is to start exploring your options when your credit has meaningfully improved, rather than waiting for an arbitrary anniversary.

For someone rebuilding credit, six to twelve months of consistent, on-time payments may be a reasonable point to evaluate their progress.

That doesn’t guarantee a better interest rate or refinancing approval. It simply gives you an opportunity to see whether your financial situation has improved enough to qualify for different financing options.

How Much Can a Better Credit Score Affect My Interest Rate?

Your credit score can play a significant role in determining your auto loan interest rate.

Generally speaking, customers with stronger credit profiles may qualify for more competitive financing terms.

But remember something I’ve discussed in previous Manager’s Desk articles:

Your credit score is only part of the equation.

Lenders also consider your credit history, income, existing debt, vehicle, loan amount, and other factors.

A customer who originally financed at a higher rate may have an opportunity to qualify for something better after establishing a stronger credit history.

Let’s look at an example.

Suppose you have $25,000 remaining on your auto loan, with 60 months left to pay.

Loan Details	Current Loan	Refinance Option
Remaining balance	$25,000	$25,000
Interest rate	12%	7%
Remaining term	60 months	60 months
Monthly payment	$556	$495
Remaining interest	$8,367	$4,702

In this hypothetical example, refinancing could save approximately $61 per month and $3,665 in remaining interest, before any refinancing fees.

That’s meaningful savings without having to purchase another vehicle.

Of course, actual rates and terms depend on lender approval, and a lower interest rate isn’t guaranteed simply because your credit score has improved.

Should I Refinance or Trade My Vehicle for Something Newer?

This is where I encourage customers to think about what they’re actually trying to accomplish.

If you like your current vehicle, it’s reliable, and it still fits your needs, refinancing may be worth considering.

You may be able to reduce your interest expense or monthly payment without starting over with another vehicle purchase.

But there are situations where trading could make sense.

Maybe your family has grown and you need a larger SUV.

Maybe your current vehicle has significantly more mileage than expected.

Maybe you’re approaching a point where expensive repairs are becoming a concern.

Or perhaps you’ve built equity in your vehicle and would like to explore something newer.

Those are legitimate reasons to evaluate trading.

What I wouldn’t recommend is trading a perfectly good vehicle simply because your credit score has improved.

A better credit score can create opportunities, but that doesn’t automatically make purchasing another vehicle the smartest financial decision.

What If I’m Upside Down on My Current Vehicle?

This is another important part of the conversation.

Let’s say you owe $28,000 on your current vehicle, but its trade-in value is only $23,000.

That means you have approximately $5,000 in negative equity.

Even if your credit score has improved considerably, that negative equity doesn’t disappear.

If you trade your vehicle, the difference still needs to be addressed.

Depending on the transaction and lender approval, some or all of that amount might be included in the next loan, or you may need to contribute additional money.

And remember, rolling negative equity into another loan means you’re financing debt from a vehicle you no longer own.

In that situation, refinancing your current vehicle could be worth exploring before making the decision to trade.

However, refinancing isn’t automatically available when you’re upside down. Lenders have loan-to-value requirements, and significant negative equity can make refinancing more difficult.

Sometimes the best financial decision is to continue making payments, reduce the balance, and revisit your options later.

Can I Refinance Through My Current Lender?

Sometimes, but not always.

Some lenders offer refinancing options to existing customers, while others may require you to obtain financing through another institution.

Banks and credit unions can have different lending programs, credit requirements, and vehicle eligibility guidelines.

That’s why it’s worth comparing actual offers rather than assuming your existing lender will automatically lower your interest rate.

Your original loan generally doesn’t change just because your credit score improves.

You typically need to qualify for and complete a new financing agreement to change your loan’s interest rate.

Also, review your current loan agreement for any applicable prepayment penalties or other costs before making a change.

Be Careful About Extending Your Loan Just to Lower the Payment

This is something I always want customers to understand.

Let’s say you have 36 months remaining on your current loan.

A lender offers to refinance your balance over another 72 months.

Your payment might drop significantly.

But that doesn’t automatically mean you’re saving money.

You could end up paying interest for several additional years, potentially increasing the total amount you pay.

That’s why I recommend looking at three things:

• Your monthly payment.
• Your interest rate.
• Your total remaining cost of financing.

A lower payment can certainly help your monthly budget, but the best refinancing option isn’t always the one with the lowest payment.

What If I Had No Credit When I Originally Purchased My Vehicle?

This is another situation I see regularly.

A customer purchases their first vehicle with very little established credit.

They may have needed a qualified co-signer, or they may have received a higher interest rate because the lender didn’t have enough history to evaluate their creditworthiness.

Over the next year or two, they make their payments on time and continue building their credit profile.

Now their situation may be very different.

They may have a longer credit history, a stronger payment record, and a better credit score.

That can make it worthwhile to explore whether they qualify for financing on their own or at a more competitive rate.

But there’s an important distinction.

A higher credit score doesn’t automatically mean you’ve established enough credit history to qualify for every lending program.

I’ve seen customers with scores above 700 who still have limited credit histories.

Every situation is different, and that’s why I always recommend looking at the entire credit profile rather than just the number.

What If Interest Rates Are Higher Than When I Purchased My Vehicle?

This is another factor customers sometimes overlook.

Your personal credit situation may have improved, but interest rates in the overall market may have changed too.

For example, you might have purchased your vehicle when financing rates were relatively low.

Even with a stronger credit score today, you may not necessarily qualify for a lower rate than the one you already have.

The opposite can also happen.

Someone who originally financed at a high rate may find that improving their credit creates a meaningful opportunity, even if overall market rates haven’t changed much.

That’s why I recommend comparing real financing offers rather than assuming your improved credit score guarantees savings.

My Advice: Don’t Wait Until You’re Ready to Buy Another Vehicle to Review Your Financing

This is probably the biggest takeaway I want customers to remember.

If your credit has improved significantly since purchasing your vehicle, you don’t necessarily have to wait until you’re ready for another car to explore your options.

Take a look at your current loan.

Find out your interest rate, remaining balance, and how many payments you have left.

Then determine whether refinancing could save you money.

If you’re happy with your vehicle, refinancing may be the better choice.

If your vehicle no longer fits your needs, trading may be worth exploring.

And if your credit has improved but your current financing is already competitive, sometimes the best decision is simply to keep making your payments.

The goal shouldn’t be to get into another vehicle just because you can. The goal should be to put yourself in a better financial position.

After more than 18 years helping customers with vehicle purchases and financing, that’s the advice I believe makes the most sense.

Have Questions? I’m Here to Help.

Every customer’s situation is unique.

Whether your credit has improved since your last vehicle purchase, you’re wondering whether refinancing makes sense, or you’re considering trading your current vehicle for something newer, my team and I are always happy to help you understand your options.

At Apple Chevrolet, your Tinley Park Chevy dealership, our goal is not just to sell vehicles. Our goal is to help customers make informed decisions they feel confident about.

If you have questions, feel free to reach out directly:

Adam Pirman
Sales Manager
Apple Chevrolet

Phone: 708-429-3000
Email: apriman@applechevy.com

Or stop by and visit us:

Apple Chevrolet
8585 W 159th St
Tinley Park, IL 60487

I look forward to helping you with your next Chevrolet experience.