;)
2021 proved to be another record-breaking year for auto loan refinancing.
Consumers saved more, reduced their interest rates by a greater margin, and even saw their vehicle equity improve as used car prices skyrocketed — all while the COVID-19 pandemic entered its second year and continued to change the economic landscape across the world. From microchip shortages to loan delinquencies to inflation, it’s hard not to notice the influence the coronavirus has had on the entire auto industry.
While our inaugural report focused on the impact of the pandemic, this year’s edition brings to light the factors that determine when it makes sense to refinance your auto loan and how much a borrower can save by doing so.
RateGenius analyzed a sample of more than 300,000 funded loans, i.e. successful auto refinance applications made by our customers between 2013 and 2021. We also included 2021 proprietary data from AUTOPAY which merged with RateGenius under The Savings Group in July 2021.
So, how much did borrowers save by refinancing their auto loans? What factors contributed to higher savings from refinancing? And how did borrowers get the most out of their refinance?
Let’s dive right in.
$1,158
Average annual savings by refinancing auto loans in 2021
7%
Average interest rate reduction for every refinanced auto loan
16.7
Number of months into auto loan before refinancing
56%
Percentage of borrowers who saved $50 to $149 per month
670
Average credit score of auto refinance borrowers last year
$153
How much Tesla owners saved every month after refinancing
Auto refinance borrowers saved an average of $1,158 per year, or about $97 per month. This is 16% higher than in 2020 and a new record, surpassing 2015’s average annual savings of $1,031.
More than half of all borrowers (56%) saved between $50 and $149 on their monthly car loan payments.
Additionally, the percentage of borrowers who save over $100 per month has been steadily increasing since 2018. In 2021, 41% of borrowers saved more than $100 monthly after refinancing their car loans compared to 33% the year before.
One in five (19%) borrowers had their payment reduced by $150 or more.
There are three key data points that can help explain why borrowers had greater auto refinance savings in 2021:
However, these aren’t the only factors that can influence how much you can expect to save after refinancing.
Contrary to popular belief, a high credit score doesn’t automatically translate into higher savings when refinancing a car loan. In fact, borrowers in the Super Prime category (781 to 850 credit score) saved the least after refinancing, an average of $85 per month.
Nonprime borrowers (601 to 660 credit score) saved $99 per month, just one dollar less than borrowers in the Prime credit tier (661 to 780).
But why? Lenders look at more than just a credit score to determine whether or not they will offer an auto refinance loan, and with what rate and terms. Borrowers can generally expect higher savings if any or all of the following have occurred since taking out the original auto loan:
The more the above applies to a borrower’s situation, the more they can expect to save when refinancing. However, every lender is different, and there are other factors to consider (like income, existing debt, the condition of your car, etc.) that can also impact a credit decision.
The average interest rate of original auto loans (pre-refinance) was 13.9% while the average for refinanced loans was 6.8%.
Both are the highest rates recorded in eight years — but so is the rate reduction. At 7.1%, the interest rate difference between the original and refinance auto loans in 2021, surpassed the previous year’s record, 5.5%.
Predictably, borrowers in the Prime and Super Prime credit categories had lower interest rates before and after refinancing their loans compared to the Nonprime and Subprime groups. On average, Prime borrowers lowered their auto loan rates from 11.9% to 5.1%, and Super Prime from 6.8% to 3.4%.
While better credit scores do help lock in a better interest rate, the rate spread shrinks if the borrower’s credit score is above 660. Super Prime borrowers reduced their interest rate by 3.4% and Prime by 6.8% while Nonprime and Subprime reduced theirs by 7.9% and 8.1%, respectively.
Interest rates were historically low throughout 2021, but among the loans that successfully completed the refinance process, interest rates were higher.
Remember: A higher credit score does not necessarily mean higher savings after refinancing. Unless the borrower’s credit score has increased, interest rates have dropped, or loan-to-value has improved since getting the original auto loan, refinancing may not be worth it.
Additionally, rates have been low since early 2020. It’s possible that borrowers in the higher credit categories are getting auto loans with competitive interest rates from the get-go. According to Experian’s State of the Automotive Finance Q3 2021 report, the average interest rate for new vehicle financing was 3.58% for Super Prime borrowers and 3.64% for Prime.
Borrowers refinanced their auto loans sooner last year, 16.7 months into their loan compared to 17.3 months in 2020.
But does timing your auto loan refinance impact how much borrowers save?
Overall, refinancing after 11 to 15 months into the original auto loan appears to yield the highest savings. In 2021, borrowers who refinanced during this period saved $85 to $92 on their monthly loan payments and between $1,100 and $1,700 over the lifetime of the loan.
There are two things to keep in mind when considering refinancing an auto loan:
The earlier into the loan, the less borrowers save on monthly payments. While savings are still possible, the borrower’s finances likely haven’t changed significantly since the original loan, so refinancing isn’t likely to be much more attractive in terms of interest rates and monthly loan payments.
The later into the loan, the less borrowers save overall. If the borrower improves their credit and builds equity in their vehicle, their monthly payment is likely to decrease substantially. But, refinancing later often means extending the loan term, so it’s likely the borrower will have paid more by the time they’re done repaying the refinance loan.
According to a TransUnion report, 75% of consumers were motivated to refinance their auto loans to lower their monthly loan payment in 2020. Most auto refinance borrowers are “payment shoppers,” meaning they’re more interested in saving money on their monthly car loan payments — not how much they’ll pay over the life of the loan.
Once again pickup trucks delivered the biggest savings after refinancing: $131 per month. They’re not only expensive — the average transaction price for a mid-size pickup truck in November 2021 was $41,417 — they also hold their value. These factors, among others, can help borrowers get better loan terms when refinancing and lower their monthly auto loan payments.
SUVs had the second-highest average monthly savings after refinancing ($113), followed by sports cars ($103). Minivans and station wagons ranked last among vehicle classes with an average of $75.
Teslas drove the biggest savings of all car makes. The owners of these electric cars taking the world by storm saved an average of $153 per month after refinancing their car loans. That’s more than $1,800 in savings per year.
Six out of the top 10 models with the biggest monthly savings were pickup trucks. In fact, trucks took the top three spots. Both Ram 3500 and GMC Sierra 1500 owners saved over $150 per month after refinancing while Chevrolet Silverado 2500 owners just missed the mark with $145 in monthly savings.
Tesla owners had by far the highest original loan amounts – $50,300 on average — higher than Porsche ($47,600) and Maserati ($44,300). Therefore, the amount refinanced last year was also high, roughly $42,100.
However, Teslas also have the largest monthly car loan payments before and after refinancing ($873 and $720). Compare that to the make with the second-highest original auto loan payment, Audi. Monthly payments for Audi drivers dropped from $743 per month to $641 after refinancing.
Original loans on Tesla vehicles had a very low average interest rate, 6.2%, which is lower than many borrowers’ refinance rates. After refinancing, Tesla owners enjoyed rates as low as 4%. It’s also worth noting that Tesla owners have a very high average credit score of 754, significantly higher than any other car brands.
Timing may have also helped. Teslas were refinanced a lot sooner than other vehicles, with an average of 13 months into the existing auto loan, at least four months sooner than the overall average.
Finally, Teslas had an average loan-to-value ratio of 86%, on par with luxury brands like Maserati and Porsche, and at least 10 points higher than more popular brands like GMC (96%) or Ford (98%).
How much a borrower pays for a car loan depends on more than just their credit score and income. Outside factors like a state’s economic health, local lending laws, and competition can also influence interest rates.
The five states with the highest average monthly payment savings were Hawaii ($123), Nevada ($111), Louisiana ($107), California ($106), and Texas ($105).
Of the cities that saw the largest savings, the top 10 are all located in Texas and California.
Borrowers in Lancaster, California lowered their car payments by $138 per month. Odessa, Texas came in second with a monthly reduction of $128.
While occupation does not directly impact a borrower’s auto refinance application, data showed some interesting patterns when it comes to monthly savings and occupations.
Workers in skilled trades were among the top 10 occupations that saved the most after refinancing. Welders reduced their auto loan payments by $128, construction workers by $108, and electricians by $103.
First responders also made the list. Police officers reduced their monthly payments by $108 on average, while nurses saved an average of $107 after refinancing their auto loan.
These occupations have three things in common that may explain why they saved so much last year: high auto loan balances, high interest rates pre-refinancing, and expensive vehicles.
For example, welders saved the most, but they also had both the highest loan balance ($34,000) and interest rate (13.6%). The other occupations with the highest auto loan balances at the time of refinancing were police officers ($33,200), engineers ($31,200), nurses ($30,500), mechanics ($30,300), and construction workers ($30,000).
After welders, the occupations with the highest interest rates on their existing auto loans were carpenters (13.1%), plumbers (12.4%), transport and logistics professionals (12.4%), and electricians (12.0%).
More than half (54%) of carpenters who refinanced their vehicle were pickup truck owners, as were 47% of welders.
Police officers’ preferences were split between SUVs (38%) and pickup trucks (33%). They also share an affinity for fast cars; 12% of refinanced loans by police officers were for sports and muscle cars, more than any other occupation.
Among nurses, 58% of all vehicles refinanced were SUVs, the highest percentage across occupations.
Whether you’re hoping to lower your interest rate or pay off your car early, the goal is still the same — to get a better car loan. Here’s what you can do to get the most out of auto loan refinancing:
With over $1,100 in annual savings, refinancing your auto loan can do more than just lower your monthly car loan payment. It can help ease the financial burden of owning a vehicle and get you closer to your financial goals too.
For more information about the report including additional insights, contact us at media@rategenius.com.Â
When you buy a car, whether new or used, one of the most important documents you’ll need is the title. The title, also known as a certificate of ownership, is proof that you are the vehicle’s legal owner. However, not all cars have titles, which may leave you wondering if purchasing a car without a…
Before agreeing to cosign on a car loan, it’s important to understand the risks. Doing the favor of cosigning on someone’s auto loan can help them qualify for the car they want — but whether you should cosign isn’t a decision to make lightly. As a cosigner, you’re responsible for…
Taking over someone's car payments isn't easy or always possible. Here's what you need to know. Owning a car can be expensive. In fact, the latest data from AAA shows that the average yearly cost to own and operate a new vehicle in 2023 is $12,182 or $1,015 per…
