Is It a Good Time To Refinance? Auto Loan Refinance Rates (2024) (2024)

Interest rates aren’t as low as they had been in the last couple of years. After the COVID-19 pandemic started, the Federal Reserve brought its federal funds rate (a key driver of rates in the market) near zero and enacted other policies to boost the economy. Rates hit historic lows, but those days are behind us.

Federal Reserve Interest Rates

Beginning in March 2022, the Fed increased the federal funds rate to combat inflation. The federal funds rate is the rate financial institutions use to lend money to one another overnight, and it influences the rates for other types of loans. Refinance rates may rise, as the Fed is expected to continue raising rates in the near future.

In November, the Fed’s target range reached 3.75% to 4%, its highest level since January 2008. But whether it’s a good time to refinance is more about your personal situation than the federal funds rate.

Average loan rates and the federal funds rate may still be near all-time lows, but that doesn’t mean it’s a good time for you to refinance. Your credit report influences the rates you’re offered much more than external market conditions, for the most part.

If you have a lower credit score than you did when you bought your vehicle, you probably won’t get a better rate no matter what the overall market is doing.

Here are the main reasons why you might want to refinance your car loan:

• Increase monthly savings
• Get a lower interest rate
• Pay your car off faster

Get a Lower Monthly Payment

Many people refinance their cars to reduce their monthly payments. There are two ways to lower your monthly payment: getting a better interest rate or extending your loan term. We recommend trying to secure a better rate instead of extending your term if possible. You’ll pay more over the life of the loan if you take longer to repay the debt but don’t get a lower interest rate.

Get a Lower Interest Rate

If your credit has improved since you got your car, you may be able to lower your interest rate significantly. This is one of the biggest draws of auto refinancing — wouldn’t it feel better to pay the lowest amount possible?

Pay Your Car Off Sooner

Another benefit of refinancing your car is that you can pay your debt off faster. You could refinance to a shorter term and enjoy having no car payment sooner. Keep in mind that depending on the rate you get, your monthly payment could go up if you choose a shorter term.

Of course, you can pay your car loan off faster without refinancing by making additional or larger payments. But refinancing might save you more on interest.

If you’re wondering whether it’s a good time to refinance your car, you might also be wondering if it’s a good time to refinance your mortgage. Homeowners can save significant amounts of money with even small interest rate improvements. However, there are different things to consider when it comes to mortgage refinancing.

Consider Closing Costs

One big difference between an auto refinance loan and a mortgage refinance loan is that you have to pay closing costs when you refinance a mortgage. You have to consider how long it would take to recoup the cost of refinancing through the savings on your monthly mortgage payment.

Closing costs for a mortgage refinance are around $5,000 on average, according to Freddie Mac^®. This may include charges such as these:

• Application fee
• Appraisal fee
• Attorney fees
• Title fee
• Origination fee

So if you save $200 per month on your new mortgage, it would take you 25 months to cover $5,000 in closing costs. This is called your refinance break-even point. In this example, you’d lose money on the refi if you moved out before 25 months. You can use a refinance calculator to see if it’s a good time to refinance your mortgage.

Smaller Interest Savings May Be Worth It

Another difference between refinancing a home and a car is that a home’s value is many times the value of a car. When you’re dealing with sums in the hundreds of thousands, a small change in interest can have a big effect on savings.

For example, you might not consider refinancing your car if you only save 0.5% on interest. But 0.5% can be a significant difference on a mortgage. You have to calculate your break-even point considering closing costs, of course, but saving 0.5% or more on your mortgage interest rate could make it a good time to refinance.

Auto lenders will look at certain things to determine if you’re eligible for refinancing. These include your credit score, debt-to-income ratio, loan-to-value ratio and current loan terms.

Credit Score

Your credit score plays a big role in determining what you qualify for. If you have a good or excellent score, you can work with most lenders and get favorable interest rates. A fair score narrows your options and increases your rates, while a poor score may require you to look for bad-credit auto loans.

Debt-To-Income Ratio

Lenders will consider your debt-to-income ratio in your application. In general, having a debt-to-income ratio below 50% can help you qualify for refinancing. This means less than 50% of your monthly gross income goes toward debt payments. The lower the ratio, the better.

Loan-To-Value Ratio

The loan-to-value ratio compares your car’s current market value to what you have left to pay on the loan. If your car is worth $12,000 and you have $9,000 left on your loan, the loan-to-value ratio is 75%. Most lenders want the ratio to be 100% or below, which means they won’t lend you more than your car is worth.

Requirements for Your Existing Loan

Not all loans can be refinanced, even if you meet the requirements above. Lenders may require your loan to have at least 24 to 36 months left in the term. Some lenders won’t refinance until your current loan has been open for at least 30 days, and others won’t refinance until it has been open for six months.

Interest rates right now are not the lowest they’ve been, but they aren’t terrible either. However, whether it’s a good time to refinance your car depends on your personal finances. We recommend comparing offers from lenders to find the best auto loan rates.

Our Recommendations for Refinance Auto Loans

Auto refinance comparison companies connect borrowers with networks of lenders to find loans that match their financial goals. Two of our top picks are myAutoloan and Auto Approve.

MyAutoloan: Best Low-rate Option

MyAutoloan has been in business since 2003 and offers refinance loans plus new and used car loans. The company works with a variety of credit types and can help people with bad credit or no credit secure financing. Rates from myAutoloan start at 2.49% for refinance loans. MyAutoloan has an A+ rating and accreditation from the Better Business Bureau (BBB).

Read more: myAutoloan review

Auto Approve: Top Choice for Refinancing

Auto Approve specializes in car refinance loans with rates starting at 2.94%. One benefit of using Auto Approve is that a loan specialist walks you through the whole process and handles all the paperwork, including transferring the title. Auto Approve has an A+ rating and accreditation from the BBB.

Read more: Auto Approve review

Because consumers rely on us to provide objective and accurate information, we created a comprehensive rating system to formulate our rankings of the best auto loan companies. We collected data on dozens of loan providers to grade the companies on a wide range of ranking factors. The end result was an overall rating for each provider, with the companies that scored the most points topping the list.

Here are the factors our ratings take into account:

• Reputation (30% of total score): Our research team considered ratings from industry experts and each lender’s years in business when giving this score.
• Availability (20% of total score): Companies that cover a variety of circ*mstances are more likely to meet borrowers’ needs.
• Loan Details (15% of total score): We considered the types of loans, term lengths and loan amounts that are available from each lender to determine this score.
• Rates (25% of total score): Auto loan providers with low APRs scored highest in this category. Available discounts were also taken into account.
• Customer Experience (10% of total score): This score is based on customer satisfaction ratings and transparency. We also considered the responsiveness and helpfulness of each lender’s customer service team.

*Data accurate at time of publication.