Is it a good time to refinance your auto loan? 5 Signs You May be Overpaying

With auto loan insurance rates low due to the COVID pandemic slowing down car purchases, now is the time to consider refinancing. If consumers aren’t sure their auto loan is the best deal, there are ways to check if an auto loan is too expensive. From a low down payment to buying through a dealership, there are numerous signs that consumers are paying too much for an auto loan.

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Feature Writer Rachel Bodine

Dan Walker graduated with a BS in Administrative Management in 2005 and has been working in his family’s insurance agency, FCI Agency, for 15 years (BBB A+). He is licensed as an agent to write property and casualty insurance, including home, auto, umbrella, and dwelling fire insurance. He’s also been featured on sites like and Safeco. He reviews content, ensuring that ex...

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Reviewed by Daniel Walker
Licensed Auto Insurance Agent Daniel Walker

UPDATED: Apr 29, 2022

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Things to Remember

  • Currently, auto loan interest rates are lower than normal, making it an excellent time to refinance
  • Consumers who choose to pay less on down payments and monthly payments might end up with higher interest rates
  • Shopping around for auto loans can ensure consumers are getting the best deal, rather than just signing up for whatever a dealership offers

Buying a car can be a stressful process, especially if consumers end up stuck with expensive auto loans. Currently, auto loan interest rates are low due to the dropoff of car purchases during COVID. In an effort to encourage sales, many auto loan lenders and dealerships are competing against each other by offering great deals on auto loans.

So if you are thinking of refinancing your auto loan, now may be the time. To make sure you don’t waste your time with paperwork only to find out you already have the cheapest loan, it’s smart to look at your current auto loan before refinancing.

Read on for five signs that your current auto loan is too expensive.

#1 – You paid a low down payment on the car

Often, one of the first inclinations that you have overpaid on a car loan is paying a low down payment. Paying a low down payment means that a larger sum of money needs financing, resulting in you paying more in the long run, even if you paid a low sum to take the car home in the beginning.

It is best to pay as large a down payment as you can afford to avoid a long-term, expensive financial commitment. Otherwise, interest rates will add a significant sum onto an auto loan with a low down payment.

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#2 – You got your loan through a dealership

Getting an auto loan through a dealership is quick and convenient, but it’s not always the best deal for customers. You are limited to the options provided by the dealership, and they may be charging a fair bit more in interest rates for the convenience compared to if you got your auto loan through a bank.

Unless you shop around for a loan, you won’t know if you received the best deal at the dealership or fell prey to clever marketing and salesmanship. Do your research beforehand on the best lenders or the best auto insurance companies that refinance auto loans to make sure you pick a reputable company.

#3 – You have multiple hidden fees

It is essential to read through the loan agreement carefully. For example, if you don’t take your time to go over all the costs at a dealership, there may be unnecessary warranties, and other hidden fees tacked on that raise your prices significantly.

Keep your eyes out for things like a documentation fee, where dealerships charge for filing paperwork, on your auto loan. If you see multiple hidden fees, it may be time to refinance.

#4 – You have a low monthly payment

Many consumers are tempted to sign up for an auto loan with a low monthly payment, as it seems like a cheaper option.

However, paying less each month ultimately results in consumers paying more over time due to interest rates.

If you have a low monthly payment and want to refinance, it is usually best to pay a larger sum each month if you can afford it.

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#5 – You have a high Annual Percentage Rate (APR)

Do you know how much you are paying in interest every year? A high APR equals a bad deal. If you have a high APR despite a good credit score, your auto loan can be considered too expensive. You should calculate your APR to determine its range and make sure you are getting a lower APR when you refinance.

If you currently have an expensive auto loan, don’t despair. Refinancing and avoiding the five pitfalls above can help you save on your auto loan.

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