Last year was a record year for auto manufacturers with over 17 million vehicles sold, many of which were financed. This resulted in an unprecedented number of unpaid auto loans in the US, with more than $1 trillion in outstanding loans. With borrowers continuing to face financial stress, some wonder if refinancing their auto loans would provide as much relief as refinancing a mortgage.
Many auto loans are currently made for more than 60 months, which can equate to a large amount of interest paid for those who do not qualify for low interest rates. Subprime loans, which now make up about a fifth of all auto loans, can carry rates in the double digits. The average subprime loan has a rate of 10.4%. For loans that are six or seven years long, borrowers are paying a large amount of interest that refinancing could reduce.
Many can refinance their auto loan down to around three percent, a sizable saving. While refinancing at these rates does require the borrower to have a strong credit score and a debt-to-income ratio that lenders find acceptable, even those with some credit problems may be able to reduce their monthly auto payments by $50.
However, refinancing auto loans is not for everyone. Those who have fairly low rates may find that dropping a few additional percentage points does not help their monthly payment.
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