Refinancing your car loan may seem unnecessary, but it could save you thousands of dollars
Let’s face it, the idea of refinancing your car loan seems boring and pointless. However, a recent auto refinance report from RateGenius shows auto loan borrowers saved an average of $1,158 in 2021. That means you could also save thousands if you were to refinance your existing auto loan. Doesn’t sound so boring now, does it?
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Auto loan refinance customers saved more in 2021 than in 2020
The first key takeaway from RateGenius’ findings is that auto loan refinance customers saved 16% more in 2021 than in 2020. This can be attributed to a few key points, including:
- Funding rates were higher in 2021: The report shows that the average interest rate before refinancing in 2021 was 13.9% compared to 10.8% in 2020.
- The average loan-to-value (LTV) ratio has improved: The average retail loan-to-value ratio in 2021 was 93.1% compared to 102% in 2020.
- Vehicles were more expensive: Thanks to exorbitant car prices last year, the average amount of vehicles financed in 2021 was $26,070, compared to $18,518 in 2020.
In addition to better refinance rates, many customers have saved money on their monthly auto loan payments. The report showed that more than half (56%) saved between $50 and $149 on their monthly payments by refinancing last year. In fact, 41% of borrowers saved $100 per month by refinancing their auto loans, up from 33% the year before.
Does your credit score play a role when refinancing your car loan?
Yes, but not as much as one might think. RateGenius found that borrowers with credit scores between 781 and 850 actually saved the least, at just $85 per month. By comparison, non-preferred borrowers (601-660 credit score) saved an average of $99 per month, which was on average only a dollar less than prime borrowers (661-770).
It’s an interesting statistic, given the general credit thinking that “the higher the credit rating, the higher the savings,” but it’s not entirely true. Instead, lenders look for a few key factors when considering your credit score:
- Improved credit score: If you move to a higher credit score bracket, you may get a lower rate when refinancing.
- Reduced interest rates: If interest rates drop across the board, you can take advantage of a lower rate by refinancing.
- A better loan-to-value ratio: If you’ve paid off most of your car loan, then you’ll have a better chance of getting a better refinance interest rate.
Keep in mind that each borrower’s situation and lender’s criteria are different. Other factors, including your income, debt situation, and the age and condition of your car, are all considered when refinancing your car loan.
When is the right time to refinance your car loan?
According to the report, the best time to refinance your car loan is when you are 11 to 15 months old. Borrowers who refinanced during this time last year saved about $85 to $92 on their monthly payments and between $1,100 and $1,700 a year. Borrowers who refinanced earlier in their existing loans saved less money and even less if they were later in the loan.
Pickup trucks and Teslas had the most savings
In terms of vehicle types that provided borrowers with the most savings, pickup trucks were the most profitable with an average reduction in monthly payments of $131 per month. SUVs came in second with $113 per month and sports cars came in third with an average savings of $103 per month.
Somewhat surprisingly, Teslas offered the most savings of any brand. Those who drive the electric cars saved an average of $153 per month after refinancing, or an average of $1,800 per year.
Ultimately, no matter what type of vehicle you drive or what type of credit situation you currently find yourself in, it’s a good idea to consider refinancing your current car loan. You never know, you could end up saving $100 a month and maybe even thousands a year by doing so. It’s certainly not boring or unnecessary.
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