Have I Missed My Opportunity to Refinance My Car Loan?

Interest rates have risen substantially in 2022. Rates have climbed nearly a full percentage point from the start of the year, and we saw the largest quarterly increase in 28 years during the first three months of 2022. After several years of historically low interest rates, people are no longer receiving the amazing financial breaks from refinancing loans that were occurring in 2020-2021. While this phenomenon is primarily associated with home mortgage refinance, there is a common misconception that the window for refinancing a car has also closed. Fortunately, nothing can be farther from the truth.

Conditions Around the World Create an Incentive to Hold onto Your Vehicle Longer

There are times when trading in your vehicle and using that money to pay off the balance of your car loan makes smart financial sense. However, conditions around the world today are actually creating a compelling reason to do the exact opposite – right now, you’re much better off holding onto your vehicle longer and refinancing your car loan to lower your monthly payments.

Inflation Is Here to Stay

We’re experiencing the highest levels of inflation that we’ve seen in over 40 years. Earlier this spring, the annual inflation rate climbed above 8.5% and unfortunately, financial experts don’t see an end in sight to this phenomenon.

Inflation is impacting just about every aspect of daily life, creating a significant financial strain on many people. With reduced ability to save money, rapidly escalating vehicle prices and less flexibility in monthly budgets, it’s not an ideal time to purchase a new car.

Gas Prices Continue to Rise

Gas is currently over $5/gallon in many parts of the country, and it’s become pretty clear that these prices haven’t reached their peak yet. Unfortunately, there doesn’t appear to be a solution coming anytime soon that will help restore more reasonable gas prices.

As with inflation, these rising gas prices are impacting the monthly budgets for many Americans. With less money to spend each month, purchasing a new car doesn’t make financial sense for many people.

Used Car Values Remain at Historic Highs

Used car values came down slightly in early spring, but rose again in May. They are still at historic highs. In addition, dealers have a limited inventory so they’re trying to maximize profit on every car they sell. There is absolutely zero wiggle room for negotiation on new cars – they are being sold either above MSRP or at MSRP with market adjustment fees that raise the cost of the vehicle above sticker price.

These prices make it a less than ideal time to buy a vehicle. Regardless of whether you’re getting a new or used car, you are likely to be paying the highest possible price, which will create a scenario where you’re taking out a large car loan that will result in a high monthly payment.

Purchasing a Vehicle at Historic High Prices Sets You Up for Financial Hardship

While you may get more money on a trade-in right now due to the elevated values of used cars, the cost of the vehicle you purchase as a replacement will be even higher. For example, it’s quite possible that you may get $5,000 more than you expected on your trade-in, but if your new car costs $8,000 more than it normally would, you’re still spending $3,000 extra due to this transaction and will have to build this additional money into your new loan. As a result, you’re amassing more debt than you would by keeping your current vehicle.

This could potentially create problems for you down the road. It’s likely that car values will eventually return to normal, even if it takes several years. When this occurs, it can cause you to be upside down on your car loan (in other words, you have negative equity in your vehicle). Therefore, holding onto your vehicle makes financial sense because you can avoid negative equity once cars start depreciating at traditional levels again.

If you end up with negative equity in your vehicle, you may find yourself in one of three undesirable situations:

• You won’t receive as much money on a trade-in as you owe on the remainder of your car loan, forcing you to pay additional money out of pocket to trade it in
• You won’t have enough equity to refinance your car loan without paying off the difference in the value of your car and the value of your loan, and this may force you to remain stuck in an existing car loan that has unfavorable terms
• Since both of the previous options mentioned will create a financial hardship, you may be forced to hold onto the vehicle even if you find yourself in a situation where you need to replace it

Therefore, if you don’t have an urgent need to replace your vehicle, you are much better off keeping it. By waiting to trade it in until conditions return to normal, you can avoid getting into a situation where you have negative equity in your vehicle.

The additional equity you gain by your patience will serve as a down payment for your new car, helping you reduce the car loan you need to take out when you eventually buy your new vehicle. Instead of digging yourself a financial hole by trading in when conditions are poor, you’ll be able to set yourself up for a smaller loan and lower monthly payments in the future when conditions are more optimal.

Refinancing Now Can Help You Ride Out the Inflation Storm

You may want to consider refinancing your car loan now, even if you have a decent rate on your existing loan. While home mortgage interest rates are rising rapidly, these interest rates are less impactful on a car loan because the loan amount is much smaller and the loan term is much shorter. Therefore, a 1% increase in car loan interest rates will cost you much less money over the life of your loan compared to what it will cost you on a home mortgage.

In addition, the elevated value of your vehicle makes it an ideal time to refinance. This additional equity can allow you refinance your car loan for a larger amount of money. You can then use this extra cash to pay off another debt which you may be carrying, such as a high-interest credit card.

At iLending, we are typically able to help you lower your interest rate by 8% on average. Even with rising interest rates, you will still be able to lower your rate by approximately 7%, which will still result in significant savings. On average, we save individuals $145 on their monthly car loan payments. This infusion of cash into your monthly budget can help you counteract the impact inflation is having on your finances.

iLending Makes Car Loan Refinance Easy

At iLending, we make refinancing your car loan easy and hassle free. Our exclusive You First Approach™ has been created with your needs in mind and ensures you have a great experience throughout every step of the process.

You’ll work with a loan consultant who will discuss your goals with you in detail. Your loan consultant will then do all the work for you by reviewing our extensive network of nationwide and local lenders to find the best rate and terms to achieve your goals. Your loan consultant will review the best options with you and answer all your questions to ensure you’re able to make the best decision for your specific needs.

Once you decide on a loan, we’ll help you complete all paperwork and make sure the process goes smoothly. You’ll have peace of mind that you’re being guided by an expert who prioritizes your needs every step of the way.

Apply now to start the refinancing process.

What would you do with an extra $132* in your pocket?