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When’s the last time that you took a look at the auto loan paperwork that you signed when you bought your car? A year ago? Three years ago? Do you know what interest rate you are paying? What is the term on your loan? Chances are, many of us would have a hard time locating our auto loan paperwork let alone remember what’s on it. However, with today’s low interest rates, now’s the perfect time to go digging in the file box to see if you could save yourself some money by refinancing your current auto loan. Read on for a few helpful tips that can help you decide if refinancing is right for you.

First off… The Process is Not as Bad as You Think
Unlike refinancing a mortgage, the process for refinancing an auto loan is not as complex or as lengthy as you might think. That’s because there is more emphasis placed on your credit than on the balance and value of your car. This makes the process easier and quicker and can help you realize immediate savings.

When Refinancing Can Save You Money

Lowering Your Payment
Thanks to today’s interest rates that are near historic lows, most people who took out an auto loan a few years ago may be able to get an auto loan today with a much lower rate.
At the end of 2008, a 48-month new auto loan issued by a commercial lender averaged 7.06% APR*. Today, the average rate on a 48-month new car loan is 4.68% APR*. The interest rate that you are paying has a significant impact on your monthly payment and if you can refinance your loan into a lower rate you may be able to lower your monthly payment. To find out just how much you can save with a lower rate, try our online calculator at You could save even more if your financial situation has changed for the better – and your credit score is higher — since you took out that original auto loan.

Reducing Your Term
Besides the savings you can see from lower monthly payment, you may also be able to reduce the number of payments you have to make to pay off your loan. Jack Nerad, executive editorial director and market analyst for Kelley Blue Book advises anyone in a lengthy auto loan (with an original five- to eight-year term), to research auto refinancing. Many people only pay attention to their monthly payment when purchasing a car and have no idea how much of that payment is interest. The longer the term of the loan, the more interest you’ll have to pay until the loan is paid off. Refinancing into a loan with a shorter term will lower the total amount of interest you’ll pay, even if it doesn’t considerably lower your monthly payment.

When Not to Refinance

As great as refinancing can sound, there are some cases where refinancing your auto loan could cost to you more than the savings would be worth.

Avoid Refinancing Your Auto Loan If:

  • Your existing loan has a prepayment penalty or the new loan is fraught with fees that would negate the potential interest savings. Anyone seeking an auto refinance should completely understand the details behind the new and existing loan terms.
  • Refinancing will extend the life of your loan. Unless you’re in danger of missing payments or defaulting on your loan altogether, avoid refinancing into a loan that would extend your current one. Your monthly payment may go down, but you’ll end up forking more money in interest over the life of the new loan.

How to Get Started

  1. Find out your current loan terms (check your monthly statements for the interest rate, remaining balance, and payoff amount) to determine if you’d benefit from refinancing to begin with.
  2. Start with your local credit union as they may be able to offer you lower rates and fees than other lenders. You can also shop around for rates on sites like where you can find current rate information and lender referrals, if necessary.


*APR=Annual Percentage Rate