Auto Loan Refinancing Surges as Car Payments Hit Record Highs
SALT LAKE CITY, UT – The average monthly payment for a new car has climbed to a staggering $756, wiht nearly one in five drivers (19.3%) now shelling out over $1,000 per month for their vehicles. This surge in car ownership costs has financial experts like Shane Stewart, a certified financial planner with Deseret Mutual Benefit Administrators, pointing to auto loan refinancing as a growing trend.
“I think that’s why people are looking to refinance and why lenders are all of a sudden saying, ‘Oh, you have a pretty heavy monthly amount,'” Stewart commented. Major financial institutions, including bank of America, Capital One, and Chase, are actively promoting auto loan refinancing options, enticing consumers with the prospect of lower monthly payments. Stewart notes the current market is highly competitive, driven by increased borrowing amounts and escalating car prices, making refinancing a more attractive proposition.
When Refinancing Makes Sense
Stewart advises that refinancing your car loan can be beneficial under several circumstances:
Lower Interest Rates: If current interest rates are lower than when you initially secured your loan.
Improved Credit History: If your credit history has strengthened since your original purchase.
Higher Credit Score: if your credit score has increased, possibly qualifying you for a better rate. “As that credit score improves, you might be able to get a better rate, and why not? That is a great reason to refinance,” Stewart explained.
While a lower interest rate can lead to both a reduced monthly payment and a shorter loan term, Stewart cautions that this isn’t always the outcome. Depending on the specifics of the new loan, you might find yourself with higher monthly payments on a shorter term, or lower monthly payments spread over a longer period. He strongly advises against extending a loan term so far that it exceeds the car’s depreciation period. However, when executed strategically, refinancing can yield significant savings, potentially amounting to hundreds or even thousands of dollars over the life of the loan.
When to Avoid Refinancing
There are instances where refinancing may not be advisable:
Near Loan Payoff: If you are close to paying off your existing car loan, the benefits of refinancing are likely minimal.
* older Vehicles: Many lenders are hesitant to refinance vehicles that are older than seven years or have accumulated close to 100,000 miles, considering them too aged or worn.
