Let’s face it, the thought of refinancing your auto loan sounds boring and pointless. However, a recent auto refinance report put out by RateGenius shows that auto loan borrowers saved an average of $1,158 in 2021. That means that you could save thousands as well if you were to refinance your existing auto loan. That doesn’t sound so boring now, does it?
A woman is seen using a banking app on her phone. | Jaap Arriens/NurPhoto
Auto loan refinancing customers saved more in 2021 than in 2020
The first key takeaway from RateGenius’ findings was that auto loan refinancing customers saved 16% more in 2021 than in 2020. This can be attributed to a few key points including:
- Financing 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 improved: The average retail loan-to-value ratio in 2021 was 93.1% as compared to 102% in 2020.
- Vehicles were more expensive: Thanks to sky high car prices in last year, the average amount for financed vehicles in 2021 was $26,070 compared to $18,518 in 2020.
In addition to better refinancing rates, many customers saved money on their monthly auto loan payments. The report showed that over half (56%) saved between $50 to $149 on their monthly payments by refinancing last year. In fact, 41% of borrowers saved $100 a month by refinancing their auto loans, which is up from 33% the year before.
Does your credit score play a factor when refinancing your auto loan?
A man holds his smartphone showing a graph with the credit score. | Rafael Henrique/SOPA Images/LightRocket via Getty Images
Yes, but not as much as you might think. RateGenius found out that borrowers in the 781 to 850 credit score range actually saved the least, at only $85 per month. By comparison, nonprime borrowers (601 to 660 credit score) saved an average of $99 a month, which was only an average of a dollar less than Prime borrowers (661 to 770).
That’s an interesting statistic, considering the general thought when it comes to credit is “the higher the credit score the higher the savings,” but that’s not completely true. Instead, lenders are looking for a few key factors when taking your credit score into consideration:
- Improved credit score: If you move into a higher credit score bracket, then you can secure a lower rate when refinancing.
- Reduced interest rates: If interest rates go down across the board, then you can take advantage of a lower rate by refinancing.
- A better loan-to-value ratio: If you have paid down most of your auto loan, then you’ll have a better chance of securing a better refinancing interest rate.
Keep in mind that every 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 taken into consideration when refinancing your auto loan.
When is a good time to refinance your auto loan?
Close-up of the upper corner of a consumer credit report from the credit bureau Equifax. | Smith Collection/Gado/Getty Images
According to the report, the best time to refinance your auto loan is when you’re 11 to 15 months into it. Borrowers that refinanced during this time period last year saved around $85 to $92 on their monthly payments and between $1,100 and $1,700 annually. Borrowers that refinanced earlier into their existing loans saved less money and even less if they were later into the loan.
Pickup trucks and Teslas delivered the most savings
2022 Tesla Model S | Tesla
As far as which types of vehicles gave borrowers the most savings, pickup trucks saw the most with an average monthly payment reduction 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 out of all of the brands. Those piloting the electric cars saved an average of $153 per month after refinancing, which is an average of $1,800 per year.
Ultimately, no matter what type of vehicle you drive or what type of credit situation you’re currently in, it’s a good idea to look into refinancing your current auto loan. You never know, you could end up saving $100 per month and maybe even thousands per year by doing. That’s definitely not boring or pointless.
Keyword: Refinancing Your Auto Loan May Sound Pointless But it Could Save You Thousands