As of March of this year, the average interest rate on a 60-month loan for a new vehicle was around 4.5%. If your credit is good and your rate is equal to or higher than the average, you may be overpaying.
However, you have to find better rates and terms before you begin seeing extra cash in your wallet. Doing so can be difficult without the right strategy and tools.
That being so, here is a guide to finding the best auto refinance deals in three easy steps.
3 easy steps to finding the best auto refinance deals
1. Do your homework
The first step in refinancing your auto loan is revisiting the details of your current loan.
Take note of the following:
- Your interest rate
- The amount you owe
- The number of months left in your term
- Your monthly payment
- The amount of interest you will pay overall
- Your level of satisfaction with the lender
- How long it has been since your last auto refinance (if applicable)
Write down all of the figures.
2. Shop around
Next, it’s time to start shopping around to see if you can find a better deal. It’s best to get quotes from a few different lenders. Ideally, they are lenders who do not run a hard credit check to prequalify you.
SuperMoney’s personalized auto loan engine makes this very easy to do. Within a few short minutes, you can get quotes from multiple vetted lenders without hurting your credit score.
You’ll also find reviews and highlights about each company on our auto loan refinance review page.
3. Crunch the numbers
Find out all the details you need to know from the prospective lenders who prequalify you, including:
- The interest rate for which you qualify
- All the fees that will apply
- Your new monthly payment
- Your term options
- The new total cost
- Vehicle eligibility requirements
- How the lender rates with past customers
With all of this information, you will be able to figure out if a new lender can offer you a better deal than your current loan. Keep reading to see an example of these steps in action.
Auto refinance example scenario
Stacy is a recent college graduate who just started a new job. One year ago, she bought a car that cost her $18,995. She put down $3,995 and took out a 60-month loan for $15,000 at an interest rate of 5%. Her current monthly payment is $283.
She keeps seeing lower interest rates advertised, and her credit has recently improved, so she wants to find out if she can save on her auto loan.
She uses SuperMoney’s auto loan offer engine to see what she can get, and her best new rate is 3%! She has paid off $4,000 of her principal loan amount, so now she owes $12,200 and has 48 months remaining on her loan.
Her next step is to use an auto refinance calculator to estimate her savings.
Here are her findings:
- If she refinances with the lender that offers her the 3% interest rate and sticks with the same 48-month term, she could lower her monthly payment by approximately $40 while reducing the interest she pays over the life of the loan by $589.
- If she shortens the term by one year to 36 months, her monthly payment will increase by $37, but she could save $760 over the life of the loan.
- If she extends the loan term by one year to 60 months, she could reduce her payment by $85 and would still save $417 over the life of the loan.
So the choice she makes will depend on her goal.
- Does she want to save a bit monthly and overall? If so, keeping the same term length is the way to go.
- Does she want to save the most overall even if that means her monthly payment goes up? If that’s the case, then shortening her loan term is the best option.
- Does she need to lower her monthly payment as much as possible, even if her overall costs go up? Then extending the loan will be best. In this scenario, she will still save overall and monthly, but that’s not always the case.
- Are the savings not significant enough to make the change right now? If not, then staying with her current lender and working on her credit is best.
By finding the best interest rate and terms that you can get, and then working out these details, you can figure out which option will provide you with the most value.
Remember to look at the monthly payment, total cost, and any other fees that may apply.
Lastly, there’s something to be said about a company’s customer service, so be sure to read reviews from past customers.
Auto refinance frequently asked questions
When should you refinance your car loan?
Theresa Williams-Barrett, VP of Consumer Lending and Loan Administration at Affinity Federal Credit Union, says, “When you should refinance your car loan varies quite a bit depending on the borrower’s original loan rate and term, the value of the car and balance due, and the borrower’s credit score and financial situation.”
It is more likely to be beneficial if you can get better rates and terms than you currently have. This will happen if interest rates have dropped nationwide, if your credit has improved, or if you got a bad deal originally.
However, you might also want to do so to extend your term and lower your payment if it is the last option before defaulting.
Williams-Barrett also adds that those who agreed to a very short-term originally or to expensive products like Gap insurance or a dealer warranty may be able to save through an auto refinance.
Can you refinance an old car?
Most lenders have age restrictions on the vehicles that they will finance/refinance. For example, SpringboardAuto requires vehicles to be 2008 models or newer. Be sure to check all of a lender’s vehicle requirements as you are vetting them.
Is it bad to refinance your auto loan?
It can be, but it can also be good. By following the steps above, you can determine if refinancing will be beneficial or not.
How does it work when you refinance your car?
When you refinance your auto loan, you will get a new loan which will pay off your old loan. You will then make payments toward the new loan until you have paid it in full.
Who are the best auto refinance companies?
Where is the best place to refinance an auto loan with bad credit?
Find the best deal on your auto loan
Now you know how to find the best auto refinance deals. There’s no use in paying more than you need to for your auto loan.
By reviewing your current loan, shopping around, and crunching the numbers, you can figure out if a better deal is available to you. Who knows, maybe you can use the extra money you save to pay off credit card debt or take that vacation you’ve been eyeing.
If you’re ready to start shopping for an auto refinance deal, start by taking advantage of SuperMoney’sauto loan engine to find your lowest rates.
Then, compare lenders side-by-side to see who can offer the best terms for your situation.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.