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More Car Owners Refinancing to Cut Payments, Save Some Cash — Should You?

by | July 31, 2025

With rising inflation and interest rates at levels still deemed too high by most consumers, everyone’s looking for ways to save money. An increasing number of people are discovering they can refinance their vehicle loans, cutting their monthly payments significantly.

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Consumers could save a significant amount of money each month by refinancing their vehicles.

According to a new study by TransUnion, 18 million people could save as much as $150 a month by refinancing their vehicle loans. That’s from a pool of 80 million loans. If the Federal Reserve cuts interest rates by a quarter point later this year, another 4 million people could be “in the money.”

“At a time when we are still feeling the effects of inflation on budgets and spending, consumers are exploring every opportunity to save money,” said Jason Laky, executive vice president and head of financial services for TransUnion. “Refinancing an auto loan can reduce monthly payments substantially and bring much needed financial relief to millions of Americans.”

Rate change

Despite the recent move — or non-move — by the Fed to leave rates unchanged, interest rates on car loans are falling. This is, in part, because Fed Chairman Jerome Powell said there would be two rate cuts sometime during 2024 and 2025, and none have happened leading to speculation there will be one in September and another at the end of this year.

The Fed Funds Rate remains unchanged at 4.25-4.50%, which is widely considered to be restrictive, meaning that if the labor market does not deteriorate, in the absence of inflation picking up, it would be appropriate to cut rates, noted Cox Automotive Chief Economist Jonathan Smoke.

Fed Chairman Jerome Powell announced recently that rates would remain unchanged, despite pressure from the Trump administration to cut them.

Auto loan interest rates are tied to movement in the bond market. As bond yields rise so do interest rates, which they did at the start of 2025. However, the auto loan rates have declined at bit in the last two months, making it a good time for some to consider refinancing their vehicles.

Saving money

As interest rates on car loans decline, it doesn’t mean everyone should run out and try to refinance their vehicles to save a few bucks. In fact, purely by the numbers it benefits less than a third of all loan holders.

However, owners with good credit — above a 700 FICO score — are the most likely to benefit from a refinancing their loans. Borrowers whose current loan rates exceed the prevailing average APR, make them strong candidates to benefit financially from a refinance. With current rates, consumers could save between $50 and $149 per month, according to TransUnion.

“Many auto loan borrowers may not realize that refinancing is an option,” said Satyan Merchant, senior vice president and auto and mortgage business leader at TransUnion. “As a result, those who do refinance tend to be more financially savvy and proactive about managing their credit.”

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Auto loans are different

The notion of refinancing a house for a better interest rate and, by extension, a lower monthly payment is well known to most people. However, the idea that one could do the same with their SUV or crossover is much less understood.

Rising interest rates had people paying more for their used vehicles.

That said, banks and other lenders examine who they lend to very carefully and some differences between the different consumers are coming to the fore.

A consistent trend has emerged: auto refinance loans are demonstrating stronger performance compared to original purchase loans originated during the same period. This pattern holds true across all credit tiers, with particularly notable results among near prime borrowers.

An analysis of Q4 2023 vintage loans reveals that consumers who refinanced their auto loans were significantly less likely to be 60 or more days past due (DPD) at the 12-month mark — by a margin of 170 basis points. The performance gap was even more pronounced within the near prime segment, where refinance borrowers outperformed purchase loan borrowers by 320 basis points.

“At a time when other segments of the auto loan market are facing performance challenges, lenders should consider targeting qualified borrowers for refinance opportunities, which have historically shown stronger repayment behavior,” Merchant noted.

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