You can refinance your home and have lower monthly payments, so why not refinance your vehicle?
Automakers like Ford, GM, and Honda provide loan financing options on new cars purchased from their dealerships. This type of financing comprises about half of all auto loans. Automakers provide baseline annual percentage rates (APRs) as low as 0 or 0.9% to compete with traditional financiers like banks and credit unions, hoping to convince customers to purchase a new car off the dealer’s lot rather than a used vehicle from another vendor.
As vehicle prices have gone up, so has the length of loans – sometimes as long as five to seven years – to somewhat soften the blow. The national average for U.S. auto loan interest rates is 5.27 percent on 60 month loans. For individual consumers, however, rates vary based on credit score, term length of the loan, age of the car being financed, and other factors relevant to a lender’s risk in offering a loan. Typically, the annual percentage rate for auto loans ranges from three percent to 10 percent.
One of the most common reasons people have to refinance their car loans is to lower their monthly payments. When you refinance, your lender issues you a new loan. This new loan can have a lower monthly payment if it offers a lower interest rate, extends your loan term, or a combination of both.
REFINANCING CAN LOWER PAYMENTS
The good news is that refinancing and extending your loan term can lower your payments and keep more money in your pocket each month — but you may pay more in interest in the long run.
On the other hand, refinancing to a lower interest rate at the same or shorter term as you have now will help you pay less overall.
Locally, Midwest BankCentre has launched a new auto refinancing loan program that expands access to reasonably priced capital for customers throughout Missouri and Illinois. The program anticipates an average savings of 15 percent on consumer auto loans, which typically rank as the second-largest consumer financing expense after mortgages.
The new program is particularly helpful to customers whose credit score has improved since a car or truck was purchased, those who were put in a loan by a selling dealer at a rate that is higher than the rate for which they may qualify, and those who want to lower their monthly costs by extending the length of the loan.
Yet significant savings are available. Among car owners nationally who arranged auto financing through used car dealers, the average vehicle loan payment is $480 per month. It is anticipated that Midwest BankCentre’s new loan program will reduce that average payment by an estimated $75 per month, for a potential average savings of about $900 a year. Each year in the U.S., Americans originate net new vehicle loans totaling $400 billion.
“Consumers have a higher level of awareness of the savings to be achieved by refinancing their mortgages, but fewer than half of all U.S. adults are even aware that they can refinance vehicle loans,” said Orvin T. Kimbrough, chairman and CEO of Midwest BankCentre. “Even fewer, just 12 percent of those who own or lease a vehicle, have ever refinanced a car loan.”
For many people, buying a car is their first major purchase and initially their largest monthly expenditure. “When I bought my first car in 1995, I thought a 20 percent interest rate on my car loan was a good deal. As a young man earning low wages with a limited credit history and no co-signer, I thought I was lucky to be able to secure a car loan so I could get to school and work every day on time,” Kimbrough said. “An accountant, who later became my wife, opened my eyes to the extra money I could save by refinancing my loan.”
To further expand access to capital, the bank accepts a minimum credit score that is lower than many lenders require and offers personalized assistance to applicants who have no credit history.
To expand its direct auto lending business, Midwest BankCentre has adopted a digitally enabled auto refinancing solution that accelerates the loan process with faster credit decisions and more accurate financing of auto loans. Residents of Missouri and Illinois may apply for loans either online at midwestbankcentre.com/auto or at any of Midwest BankCentre’s 18 branches in the city of St. Louis, the counties of St. Louis, Jefferson and St. Charles, and in O’Fallon, Ill.