Refinancing an auto loan can be a good idea when interest rates have fallen, if your credit has significantly improved since taking out your loan, or when you need to save money each month, too. With interest rates slated to rise later in 2022, now could be a good time to take advantage of car loan refinancing.
Why refinance in 2022? Right now, with prices on the rise, and interest rates set to go up later in the year, refinancing in 2022 may be a better bet earlier in the year. The benchmark interest rate is set to rise almost a full point this year, and you may want to take advantage of refinancing your car before that happens.
Will refinancing help me save money? Refinancing is typically done to save money on your monthly auto loan payment. There are two possible ways to save money when you refinance your car loan – lowering your interest rate, or stretching your loan term. Only a lower interest rate saves you money in the long run. If you stretch your loan term without first lowering your rates, you may pay less each month, but you end up owing more in interest charges.
The latest interest rates as reported by Experian in the third quarter of 2021 range between 3.68% and 19.85% on average for used vehicles, depending on your credit score. The better your credit score the lower the interest rate you may qualify for.
If you chose to refinance, our proprietary data shows possible refinancing rates as low as 2.74% depending on your credit score and other qualifying factors. This could represent significant savings over the life of your loan.
For example, if you originally took out a $15,000 loan with a 9% interest rate for 60 months you end up paying $18,683 over the life of the loan, including $3,683 in interest charges. Say you make your monthly payment – $311.38 – for two years. This means you've already paid $7,473.12, still owe just under $10,000, and have 36 months left on your loan.
If you refinance to a 36-month loan with a 3% interest rate, your monthly payments drop to $290.81, and you end up saving almost $800 over the life of your loan.
Our take. As you can see, refinancing can save you money, but with high prices, and climbing rates, you may not save as much as you'd like. This all depends on your situation and what you qualify for, though. If refinancing is the course of action for you, we want to help at Auto Credit Express. You can get the process of finding a refinancing lender started right here by filling out our fast, free, auto loan refinancing request form.