The 0.25% increase in benchmark interest rates announced by the Fed on March 16, 2022 is causing many consumers to review their debt to reduce costs in the months ahead. This is accompanied by an increase in auto loan refinancing, according to a new survey from RateGenius.
See: Fed raises interest rates for the first time since 2018 to dampen inflation
Find: Mortgage rates top 4% for first time in nearly three years
Despite the rise in interest rates, the study shows that drivers are able to reduce car loan interest rates more this year than in 2021. The average car loan interest rate has climbed to 5 .55% in March, but this remains well below the 6.23%. average in March 2021. This means that consumers can reduce their interest rates by an additional 0.26% by refinancing compared to last year.
The RateGenius study found that the average interest rate savings for consumers who refi is 7.36%, resulting in an average savings of $78.76 on their auto loan repayments. Of course, your results may vary depending on your credit score and the terms of your loan.
“For borrowers looking for creative budgeting strategies to deal with rising costs, refinancing can be an effective debt repayment tool. At the moment, borrowers are lowering their car loan rates by more than 7% on average. We’re likely to see that increase as inflation and interest rates continue to climb,” RateGenius CEO Seth Meyer said in a press release.
RateGenius has shared average interest rates for March 2022 based on credit level and loan terms:
|Credit score||36 month term||48 month term||60 month term||72 month term|
Is refinancing right for you?
Regardless of your credit score and budget situation, refinancing might be the right choice, Meyer said. He urges borrowers to look at their goals, whether it’s a lower interest rate, lower monthly payments or even cash refinancing to pay off other higher interest debt .
“Compare your car loan to the current oneauto refinance rateand use refinancing savingscalculatorto determine your savings,” Meyer told GoBankingRates in an exclusive email interview. “Borrowers are saving well over $1,100 per year (on average) on their auto loan payments.”
What you need to know before refinancing
Meyer compares the process of refinancing a car loan to refinancing a mortgage. Although you would need to provide basic personal information that would be used for a personal loan, such as your credit score, income, and debts, the condition of the car and its loan-to-value ratio also come into play, as does when you refinance a home loan.
“Lenders are mostly concerned with whether you’ll be able to repay the loan, so they look beyond credit to determine that. For example, since refinance loans are secured by the collateral (the car), they will want to assess the condition of your vehicle and confirm if it is registered and insured,” he told GoBankingRates.
Lenders also look at the loan-to-value ratio, or the value of the car compared to what you owe on the loan. However, since cars lose value, lenders generally accept a maximum LTV of 125% to 135% for a car refurbishment. Home loans, on the other hand, generally require the borrower to maintain equity in the home.
Auto refinance loans also allow for a higher debt-to-income ratio than mortgage refinance, Meyer explained, noting that you can have a DTI as high as 50% and still be approved for a low-rate auto refinance loan. interest.
How (and when) to get started with your Auto Re-Fi
It’s never too early to refinance your auto loan, Meyer said. “You can refinance as soon as you’ve purchased the car. The most common time people refinance is right after they get the loan from the dealer,” he said.
Banks and credit unions often have lower interest rates than car dealerships, but there is a level of convenience associated with using the dealership’s lender at the start to “sign and drive” your car off the market. ground.
Once you’ve made the purchase, you can start checking refinance loan rates without hurting your credit score. “It doesn’t hurt your credit to start looking,” Meyer said, pointing to the Loan Finder website as a tool for consumers to view refinance estimates without a credit check.
See: How does automatic refinancing work?
Find: What percentage of your income should be spent on car loan payments?
“Many services let you see your credit score so you can get an idea of what credit level you belong to,” he added.
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