Little purchases can add up quickly and a financial emergency can put you at risk for ruin if you live paycheck to paycheck. If you are struggling to make your car payments each month, a refinance car loan can lower your payments.
The cost of the car, your credit history, and the loan’s terms will influence your interest rate for your car loan. As of 2021, the national average for vehicle loans in the country is 5.27 percent for a five-year lease. However, the interest rate can range from 3 to 10 percent.
If your credit score has increased since you first obtained your car loan, you may be eligible for a lower interest rate. You may be paying around 7 percent when you can refinance for less than 5 percent.
Below are the average interest rates for 60-month car loans based on credit score:
- 720 to 850 – 3.6 percent
- 690 to 719 – 4.95 percent
- 660 to 689 – 7.02 percent
- 620 to 659 – 9.72 percent
- 590 to 619 – 14.06 percent
- 500 to 589 – 15.24 percent
Likewise, the length of your payment plan term can influence your rate. If your refinance car term is fewer months, you may be able to get a lower interest rate.
On average, you can reduce your interest rate by .10 percent if you can change the term to 12 fewer months. Keep in mind that a shorter-term may increase your monthly payment but save you hundreds in interest charges over the next few months.
Alternatively, you may refinance your loan to a lower interest rate with a longer-term. Changing your terms in this way could lower your monthly payment without costing you more interest charges.