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Westend61/Getty Images August 26, 2022 Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
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Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. The cost of keeping your vehicle on the road each month is a challenge for many. Monthly payments on cars have soared — an average monthly payment of $515 for used vehicles and $667 if you buy new, . Many consumers consider — or replacing their current loan with a new one — to make these costs more manageable. If your circumstances have shifted or market conditions have improved since you took out your current loan, refinancing may reduce your monthly payments. But refinancing is not without risk and can end up being more costly in some instances. So, it’s best to consider the benefits and drawbacks of refinancing and assess your financial situation to determine if it’s a smart move. Pros of refinancing your car
Lower interest rates
Your interest rate significantly impacts your monthly auto loan payment. This number is based on a variety of factors but is primarily affected by your credit score. So, if your credit has improved since you took out your loan it may be a great time to explore refinancing options. You will likely receive more favorable terms and rates. Lower monthly payments
If you are struggling to meet your monthly payments, refinancing can lower your costs and free up some extra cash each month. You can do this by getting a lower rate, a longer term or both. But although signing off on a means you can save money on a monthly basis, it also means a higher total cost as you’ll pay more in interest over the life of the loan. Pay off your loan sooner
Refinancing can also lead to paying off your loan early. If your income has increased since taking out your auto loan, it may be a good time to refinance to a shorter term. By paying off your loan early, the interest you pay will decrease — assuming the lender does not charge prepayment penalties. Cons of refinancing your car
Pressing the restart button on your auto loan by refinancing is not without its risks. Consider these disadvantages. High interest rates
Refinancing also comes with the risk of higher interest rates. If your credit has taken a dip, or interest rates have gone up, you may end up with an interest rate that’s higher than your current one. In the current market, steep interest rates aren’t uncommon given the recent that have driven interest rates up to record highs. So, it’s in your best interest to shop around for different options to do your best to avoid sky-high interest rates or wait it out until market conditions improve. Additional fees
If you are in a tough financial situation, keep in mind that refinancing your loan does come with some extra fees. These costs can include application, prepayment, title transfer and origination fees. Because the fees can add up, be sure to fully calculate how much the refinance will cost you and how the rate and term compares to your current loan. Could become upside down
If you refinance and extend the life of your loan, you are more likely to be in a situation where you owe more than your vehicle’s worth. This is commonly referred to as being on your loan. How to determine if refinancing your car is a good idea
The key to determining if is a good idea comes down to the amount of money you can potentially save. Weigh the pros and cons while taking advantage of an . Below are some situations where it might make sense to refinance: Your credit improved. If your credit score has improved, you may receive more favorable terms and rates through refinancing. You received dealer financing. Typically, the terms offered through dealerships are not the best available. Explore other lending options if you currently have dealer financing. You can’t make payments. Missing payments can result in fees, damaged credit or worse: repossession of the vehicle. If you cannot make payments, refinancing may get you a lower monthly payment. Next steps
Before looking for , weigh the advantages and disadvantages and how they apply to you to make an informed decision. Ideally, you want to save money instead of simply stretching out your loan term. If you are struggling financially, it may be sensible to to get a more affordable monthly auto loan payment. Ask the lender to or consider trading your car in or selling it privately to get the relief you need. But if refinancing is the right choice for you, for the best auto lender. SHARE: Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites.