Refinancing an Auto Loan: When Should You Do It?

According to a late 2015 report from CNN, “Car buyers now owe $1 trillion on their car loans, the first time they've ever owed that much.” The amount is up 11% from the previous year, mainly due to rising car prices.  

This 10-digit debt collectively owed for financed vehicles begs the question: When is the best time to refinance an auto loan — a move that can save a borrower thousands of dollars over the course of a loan?

The Best Times to Refinance              

Auto loans share a commonality with other types of consumer loans: There’s more than one golden opportunity to refinance and lock in lower payments. Auto loans can be refinanced any time. For most people, though, the situations below offer the most cost saving potential.

1. Improved Credit Score

If your credit score improves significantly after you receive a car loan, consider refinancing. For many drivers, credit score is the biggest determinant of auto loan interest rates. Lenders use credit score to predict loan applicants’ fiscal responsibility and reliability. If your score makes you a good candidate in these areas, and you decide to refinance, you should be happy you did.

2. Interest Rates to Rise

Rising interest rates can be a blessing and a curse. On the positive side, you can earn more from investments such as savings, CDs, and trust funds. On the negative side, you can pay more for interest-sensitive debts, such as mortgages and car loans. When interest rates seem poised to rise in the near future, it’s a good time to consider refinancing your car.  

3. Early in Loan Payment

The more loan payments you have remaining; the more money you can save from refinancing with a lower interest rate. For example, let’s say you took out a five-year, $25,000 auto loan one year ago with an interest of 7.75% APR. If you refinanced the loan today at 4.75% APR, you would save more than $1,370 over the remaining four years of the payback period.       

Why Refinance Your Car Loan Now?

According to a 2016 report from the The New York Times, “[Federal Reserve] officials have continued to emphasize that they expect to raise rates at least once before the end of [2016].” If you’re thinking about refinancing an auto loan, now appears to be a good time. If you refinance after the Fed raises interest rates, you could end up paying more interest instead of less.


To get started, visit our Rates page, where you’ll find the latest loan term and APR information for auto loans we offer. Then, visit our Online Loan Applications page to begin refinancing!


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