Is Now a Good Time to Refinance Your Car Loan?

Car loan rates have dropped recently, but that doesn’t necessarily mean you should run to the closest bank and refinance your car loan. Compared to pandemic-era lows, rates remain high. The potential upsides of refinancing vary by your original deal, loan type, and financial health.  

Have Auto Loan Interest Rates Gone Up or Down?

Auto loan rates are influenced by the federal funds rate, the target interest rate range banks use to trade with one another overnight. The Federal Reserve sets this rate to influence economic conditions. It lowers the rate to stimulate growth and raises it to cool an overheated economy. 

Following over two years of steady increases meant to curb inflation, the Fed cut the federal funds rate three times in the back half of 2024. Auto loan rates largely moved in tandem. 

Per Experian, the average auto loan rate on a new car was 6.35% in Q4 2024, down from a recent high of 7.18% one year earlier. The average auto loan rate on a used car dipped from 11.97% to 11.62% in the same timeframe.

Where Are Auto Loan Rates Headed Next?

The Fed has kept the federal funds range the same through 2025, a trend analysts expect to continue in the short term. The CME Group publishes a tool that shows the probability of fed rate changes at upcoming meetings, as given by interest rate traders. You can check this tool anytime to see the current likelihood of a rate increase or decrease in the near future, which can help you decide if now is a good time to refinance. 

If rates are expected to go down, it might make sense to wait; if rates are expected to go up, you might want to refinance sooner rather than later. Don’t take those odds as guarantees; they’re subject to changing quickly in response to economic conditions.

When it comes to 2025 rate changes, at the beginning of the year, Federal Reserve Chairman Jerome Powell said the central bank is adopting a wait-and-see approach to rate cuts, given uncertainty over how the Trump administration’s trade policies will affect the economy. 

Even if the Fed starts lowering rates, there’s no guarantee car loan rates will immediately follow suit. 

“Auto loan rates tend to be sticky on the downside, while not as sticky on the upside,” said Robert R. Johnson, chartered financial analyst (CFA) and professor of finance at Heider College of Business, Creighton University. 

Current auto loan rates remain high relative to pandemic-era lows. According to Experian data, the average auto loan rates on new cars and used cars were 3.95% and 8.84%, respectively, in Q2 2020.

Should You Refinance? Here’s How to Know

Some borrowers can likely benefit from refinancing right now. 

“If you got stuck with something in the double digits when rates were still climbing, now could be a window to shop around for something a little less impactful to your finances,” said Christopher M. Naghibi, executive vice president and chief operating officer at First Foundation Bank.   

You can also benefit by refinancing if your financial situation has improved since getting your auto loan, as lenders factor your credit history, credit score, debt, and income level into their offers.

Start by checking your current loan amount, your APR, the amount you’ll pay in interest, and your payoff timeline. Then, compare those details to the best auto refinance loan offers you can get.

These additional steps can help your decision-making process.

Determine Eligibility 

Some auto lenders have waiting periods (related to title transfers), mileage requirements, or vehicle age caps for borrowers looking to refinance. They also might impose minimum and maximum loan amounts to qualify.

Shop for and Compare Offers

Explore the top auto refinancing loans on the market. Look at current annual percentage rates (APRs) from lenders as opposed to pre-qualification or application offers, which are sometimes outdated and not guaranteed. 

“The bottom line is that you must be able to beat your current interest rate for it to be worthwhile,” said Brian Moody, executive editor for AutoTrader.

Evaluate the Full Package

If you want to refinance to lower your monthly payment, understand what you’ll pay in the long term.

“Don’t get blinded by ‘lower payments’ if it means stretching the loan out another five to seven years,” Naghibi said. “That interest can more than double the real cost of your purchase price.”

Investopedia’s auto loan calculator can help you understand the trade-offs. Prepayment penalties, origination fees, and title transfer and re-registration fees can also sour a refinancing deal. Be sure to include these in your cost comparison.

The Bottom Line 

Auto loan rates dipped a bit in 2024. However, in Q2 of 2025, they were still high relative to pandemic-level lows. It’s difficult to say how auto loan rates will move in the future, given the degree of economic uncertainty. 

In general, the decision-making process always remains the same. Borrowers can benefit from refinancing now if they took out a loan when rates were elevated or their financial situation was poor. It’s worth checking to see where rates are headed in the coming months, because if they’re expected to drop it may make sense to wait before refinancing. Compare top offers to what you’re paying currently to determine the best move for you.