We’ve covered mortgages and home refinancing quite extensively in this space in recent months and years, especially as interest rates reached near-record lows during the early days of the COVID-19 pandemic. In this post, we’re going to talk about another major purchase that you may want to consider refinancing: your vehicle.
Yes, while the price of cars has escalated during the pandemic amid chip shortages that are causing lags in the supply chain, there are ways to save money on your next car purchase or on any current auto loan. In fact, according to various reports, the average auto refinance interest rate currently sits at just over 5 percent – which is the lowest that it’s been so far in 2021. Those with excellent credit can often earn an even better interest rate, usually below 4 percent. It can all translate to big savings on your monthly auto payment. In August 2021, the average driver who refinanced saved more than $100 per month. Who wouldn’t love an extra $100 per month?
The bottom line is that under the right circumstances, now could be the right time to refinance. We’d just suggest doing it soon, as many experts believe that an interest rate hike could be coming in early 2022.
So just when does it make sense to refinance your auto loan? Let’s take a look at whether or not now’s the right time for you:
- Has it been 6 months since you purchased the vehicle? Most experts suggest that anyone who doesn’t have excellent credit wait about 6 months before refinancing, as this will give the credit score a little bit of time to recover after enduring hard inquiries. While it can be tempting to want to immediately refinance after buying the vehicle, be patient and give it some time. So if it’s been more than 6 months since you purchased your vehicle at this point, now could be the right time to refinance.
- Is your vehicle in good shape? The better condition your vehicle is in, the more likely you are to be approved for refinancing.
- Can you experience savings without extending the payment timeline? It’s always great to save money on your monthly bills, but you don’t want to do it at the expense of extending the terms of your vehicle purchase. So if you’re serious about refinancing, make sure that you can do it and experience the savings without having to tack additional months onto the loan.
- Are you on the hook for any exit costs? Some lenders will charge exit fees if you refinance with another lender. In some cases, these costs may be manageable and still worth it to refinance. But make sure to consider the total cost of refinancing before you sign on the dotted line.
Noting all of this, is refinancing your auto loan the right option for you?
