Refinancing auto loans can save drivers an average of $150 a month

Refinancing auto loans can help drivers save

Auto loan industry reports say drivers can save an average of between $100 and $200 a month when they refinance their auto loans. And you may not have to wait until interest rates finally drop to reap the savings.

HOUSTON - Are you making high auto loan payments?  You're not alone.

By the numbers:

The average new car loan payment is $734 a month, and for used cars it's $525, according to Yahoo Finance.

But auto loan industry reports say drivers can save an average of between $100 and $200 a month when they refinance their auto loans.  And you may not have to wait until interest rates finally drop to reap the savings.

Driver saves by refinancing

"I have a 2023 Nissan Kicks. I bought one three times, I love that car," laughs Imani Muhammad.

Muhammad loves her Nissan Kicks, but not the auto loan she had at 11.5% interest.

"I needed a car at the moment, so I went to the dealership and signed whatever paperwork was necessary. Definitely not the smartest financial choice on my behalf," she said.

She refinanced the loan using an online auto refinancing platform called Caribou, which offered her a handful of loan options at lower rates.

"My original payment was $497 and now, including the gap insurance, it’s $343.  So it’s a big difference," said Muhammad.

Muhammad says she's now saving $154 a month.

"I’m able to put a little more towards savings to make bigger purchases in the future, whether it’s traveling or buying a home one day. There are a few things I’m looking at, so I’m able to see that goal come closer to my everyday with that extra money," she said.

What to know about refinancing

What you can do:

Caribou CEO Simon Goodall says car owners can enter their information on the site to explore loan options through a network of lenders, primarily credit unions and community banks.  He says there's no application fee, and it won't affect their credit just to check their options.

"We would only do a hard credit pull once they found a rate that’s interesting to them.  Then we take it to the next step and do a formal application," said Goodall.

Goodall says some lenders charge a loan origination fee, but it's usually rolled into the loan.  He says even a small improvement to your credit score could result in better loan terms.

"We find that customers, as soon as a few months after purchasing a vehicle from a dealership, are able to save money from a refinancing perspective, because they don’t always shop rates when they’re buying a new car," explained Goodall.

By the numbers:

Borrowers can also get a longer-term loan to lower their monthly payments, but should keep in mind it will add to the overall cost of the car.

Goodall says refinancing is a time you can cancel add-ons you bought, such as a service contract or gap insurance, that you no longer want.  He says canceling add-ons can sometimes mean money coming back to you.

He says drivers who owe more than the car is worth are often still able to refinance the loan.