Is Auto Refinancing Worth It?

If you have a car payment or an APR (a.k.a. interest rate) you don’t like, you may not realize there may be something you can do about it. If you do know refinancing is an option, especially if your credit score or job situation has changed for the better, you may have pulled up your browser of choice and investigated refinancing your car current car loan.  Search results will likely have included ads from various refinance sources (banks, credit unions and finance companies), but it may be hard to find much advice on whether it’s worth your time to go through the refinance process.  To be more specific, are the savings you can achieve with a refinance worth the time it takes to apply and sort through offers? 

Here are our thoughts on that, backed up with data…

According to  Experian(1) the average new car loan amount originated in Q2’2020 is $36,072.  This loan amount would cover a typical scenario in which the vehicle price is $34,000, and ithe borrower paid a $1,500 down payment with a 10% tax rate ($3,250), and another $322 in state doc fees and other expenses.  

If you borrow this average amount for a five-year term and a 10% APR (interest rate), your monthly payment comes to $766.42.  That’s a big dollar amount for most people to have to cover every month.  How might a modest refinance, completed a year later, after 12 on-time payments, help bring that number down?

After 12 on-time payments, your loan balance will have come down to $30,218.  Refinancing this new amount with another 5-year loan 9% (a very modest 1% reduction in your APR) yields a new payment of $627.29.  

That’s a savings of $139.13 per month.

If you are able to do slightly better, and refinance into an 8% loan, your new payment becomes $612.73 a savings of $153.70!

So, is it worth it?

The US census department says the median US household income in 2019 was $68,703(2).  This works out to a monthly income of $5,725, or $4,866 after applying a tax rate of 15%(3).  At that income level, a monthly savings of $153.70 represents a 3% increase in disposable income every month.  Put another way, $153.70 covers two and a half tank refills of $2.17(4) per gallon gas for an average family car.

Put still another way, the $153.70 per month savings adds up to over $1,844 per year!  That covers quite a few socially-distanced dinners out (or delivered).  

So yes, given the most recently-available data on loan amounts and APRs in the U.S., refinancing is worth it.  The savings available to the average American, with the average interest rate on the average car loan are meaningful and significant.  

Stop by to see how much you can save by refinancing your auto loan today. We will make it easy to apply, and help you sort through offers according to your personal savings goals.

(1)  Experian “State of the Auto Finance Market,” Q2 2020.


(3) 15% is the average effective tax rate for the $68,000 income bracket according to

(4), national average gas price as of 10/22/2020

By Casey Harmon

Casey Harmon is the Co-Founder and CEO of Pacecar Inc. Before founding Pacecar, Casey held various executive positions at Westlake Financial and Toyota Financial Services. He has an MBA from UCLA Anderson and a BA from Stanford. Casey believes all American car drivers should have access to the best loan terms available. Casey lives in the Los Angeles area with his wife and two children.

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