When you refinance a car, you replace your current car loan with a new loan of different terms. In practice, auto refinancing is the process of paying off your current car loan with a new one, usually from a new lender.

At a basic level, refinancing is the process of replacing your current car loan with a new one. While people refinance their cars for many reasons, you ideally want to reduce both your monthly payments and the cumulative interest charge you pay over the course of your loan.

Most people refinance a car loan to 1) lower their monthly payments, 2) decrease their interest rates, or 3) remove (or add) someone on their loans. Let’s look at each reason for refinancing.

Most people refinance their car loans when 1) their credit has improved, 2) they need to lower their monthly payments, 3) national interest rates have changed, or 4) they would like to remove (or add) someone as a co-signor on their loan. Let’s look at each scenario.

If you keep a close eye on your credit profile, you might be wondering how refinancing is going to affect your credit score. The truth is, refinancing any loan will invariably have minor, short-term impacts on your credit. They can vary based on your situation.

If you wish your auto loan payment were a bit lower, you may be inclined to try to find your way out of the deal, even if it means trading down or starting over. Depending on the vehicle and your financial situation, that might be the best option. But you should first consider refinancing your auto loan.

The short answer is whenever you want. But there are more factors at play than just timing. You must be sure the numbers work out in your favor, and you must approach a refinance with every advantage available to you.

If you have determined that refinancing your auto loan is the right move at the right time, it is wise to understand the impact an auto loan refinance will have on your credit report. In the short term, the hard credit inquiries registered by new finance sources will lower your score by a few points.