That’s right, the latest trend in refinance has nothing to do with mortgages. Rather, the downward slope in auto finance rates has meant that on average, consumers pay about a percentage point less in interest on a new car loan or refinance deal.
But it doesn’t make sense for everyone. New car dealerships are offering rates as low as 1 or 2% in hopes that the new relationships forged will result in lifelong customers for the dealership. In addition, they often use add-ons like a new set of rims or expensive warranty deals that help offset the cost of such low interest rates.
But in order for refinancing to be worth it for the prime or subprime auto loan lender, the value of the car has to be more than the outstanding balance. And loan customers thinking about refinancing should think about whether or not they want to increase the total amount of interest they will be paying by taking out a new five- or six- year loan.
And industry experts say the refinancing trend could have a worrying side effect. If customers who refinance choose to hold on to their current cars—after all, they’ve just gotten it refinanced—it could put a dent in new car sales.