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Interest rates have been higher over the past several years, and although the Federal Reserve is continuing to utilize interest rates as a mechanism to combat inflation, if the rising cost of everything is wreaking havoc on your budget, one expense to reexamine is your car payment.
Keep in mind, however, that rates on new car loans are up, too. As of the third quarter of 2024, according to NerdWallet, the average monthly payment for a new car was $770. And at $520 a month, even the car payment for a used vehicle is high.
So, what’s the best strategy for you? Here are some situations when refinancing makes sense and some when it does not.
Did the excitement of buying a new car leave you unaware of financing options beyond the dealership? By learning how to find and compare car loans through services like AAA Auto Loans, you could discover better financing deals than what your current lender offered.
Even if you did everything right when financing your car, auto loan rates offered by financial institutions are constantly fluctuating and you may find a more favorable deal.
Your credit score (which you can obtain by requesting a copy of your credit reports) is shaped by your credit history, the amount of credit card debt you hold and more. As such, your credit score has a big impact on the rate you get on an auto loan.
An increase of a handful of points on your credit score can shave percentage points off the rate you would qualify for with a refinanced auto loan. Borrowers with good and excellent scores tend to get the best auto loan refinance deals.
For example, here’s how a difference in interest rate impacts monthly payments on a 48-month loan for $20,000:
Compare today’s interest rates with the rate you got when you took out your car loan. If rates are higher than the rate you have on your car loan, it’s not a good time to refinance. In other words, you should stick with your lower rate.
Refinancing can significantly impact the earlier it’s done in your original loan term. If done later, an improved rate may only alter your monthly payment by a few dollars—possibly not enough to offset any refinancing fees.
Just like when buying a new car, don’t let the low monthly payments of a longer loan term tempt you. As your car depreciates, you may be stuck with negative equity well into the loan if you opt for a longer term with lower loan payments.
If you owe more than the car is worth, refinancing your existing loan might not be an option. Getting a new loan while your car has negative equity requires excellent credit, and even then, some lenders won’t bite.
Auto financing
Refinance your auto loan with a brand that you can trust -- AAA.
Annual Percentage Rate (APR)
We may change APRs, fees, and other Account terms in the future based on your experience with ACG Card Services and its affiliates as provided under the Cardmember Agreement and applicable law.
1Cash back can be redeemed in the form of a statement credit or ACH deposit ($25 cash back minimum redemption). Cash back is not earned on business related transactions or activities. You may not redeem cash back, and you will immediately lose all of your cash back, if your account is closed to future transactions (including, but not limited to, due to Program misuse, failure to pay, bankruptcy, or death). Cash back will expire at 11:00 p.m. Central Time on the last day of the calendar quarter that is five (5) years from the date on which they are earned. Account must be open and in good standing to earn and redeem rewards and benefits. Upon approval, please refer to your Cardmember Agreement for additional information. Cash back is earned on eligible net purchases. Net purchases are purchases minus credits and returns. Not all transactions are eligible to earn cash back, such as Advances, Balance Transfers, and Convenience Checks and other advance transactions as defined in the Cardmember Agreement, as well as interest charges and fees do not qualify. U.S. Bank cannot control how merchants classify their business or transactions and reserves the right to determine which Purchases will qualify in which category. Earn 2% per dollar for qualifying net purchases made with the card through any participating AAA Club when AAA is the merchant of record, on qualifying net insurance purchases (MCC = 6300) and at eligible retail travel merchants. AAA Clubs located in Northern California, Nevada and Utah are not participating AAA Clubs and purchases made at those clubs will not qualify for 2%. Earn 4% per dollar for qualifying net purchases on AAA purchases, travel and insurance for your first 6 months up to $6,000. After that, earn cash back in the standard 2% category. Foreign Transaction Fee: None.
2 Benefits are subject to terms, conditions, and limitations on the amount of coverage. Travel and Emergency Assistance Services help in coordinating medical, legal and travel services while away from home. Rental Collision Damage Waiver coverage and peace of mind for damage due to collision or theft of most rental cars. Certain terms and conditions apply. Please refer to your Visa Guide to Benefits for details
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This card is issued by U.S. Bank NA dba ACG Card Services, pursuant to a license from Visa USA Inc. Equal Credit Opportunity Lender
*Annual Percentage Yield (APY) is valid as of 11/26/2024. Personal accounts only. Rates are variable and may change without prior notice. $100 minimum balance to open and avoid fees. Fees may reduce earnings. $250,000 maximum opening deposit when account is opened online. After online opening deposit is verified, you may deposit additional funds to your account. $500,000 maximum balance. Auto Club Trust, FSB.
**Annual Percentage Yield (APY) is accurate as of 11/26/2024. Rates are variable and may change without prior notice. Interest rates are fixed until initial maturity after the account is opened. A $1,500 minimum deposit to open the account and obtain the APY is required. A penalty may be imposed for early withdrawal. Fees may reduce earnings. Personal accounts only.
†Annual Percentage Rate (APR). Rates and terms effective as of 10/11/2024. APR is accurate as of 10/11/2024. Advertised rates and terms are subject to change without prior notice. Additional terms and restrictions may apply. Other loan rates available. Subject to borrower qualification. Advertised rate includes a 0.25% discount when you set up automatic payments from any checking or savings account. Rate is variable. Offer valid on personal vehicle loans only. Criteria to receive the stated APR: Loan term 48 months or less new or used, model year 2018 – 2024 with a credit score of 720 or higher based on the Vantage scoring model. Buyer is responsible for all state or local fees. Auto Club Trust, FSB uses a managed credit program and final APR is dependent on your credit score. An auto loan with an APR of 5.49% for a $20,000 loan at a term of 48 months, your estimated monthly payment would be $465. An auto loan with an APR of 5.74% for a $20,000 loan at a term of 48 months, your estimated payment would be $467. Private party sales will not be financed.
††Terms and Conditions apply. Offer valid for loans on vehicles purchased through the AAA Auto Buying Program from a TrueCar, Inc. (TrueCar) Certified Dealer; and approved and funded by Auto Club Trust, FSB. Applicant must submit the Member Price Summary provided by TrueCar during the application process. Must be an active AAA member to receive the additional TrueCar discounted rate. Loans offered by Auto Club Trust, FSB. Equal Opportunity Lender.
Member Savings currently not available in all states. In these states a "Target Price" is presented, which reflects a market-based example of what you can reasonably expect to pay for a vehicle configured with your desired options. Your configured vehicle may not be available or in-stock at the Certified Dealer.
TrueCar operates this information website ("Service") featuring pricing, performance, technical, and safety data available for new and used vehicles. The Service is not available in all locations.
Products are offered by Auto Club Trust, FSB. Equal Credit Opportunity Lender.
Mortgages originated by Auto Club Trust, FSB. Equal Housing Lender. NMLS# 799629
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