What do rising interest rates mean for your car loan?

With inflation at its highest level in decades, the Federal Reserve is raising interest rates and we’re already seeing the impacts. The average 30-year fixed-rate home loan has jumped above 5% according to Freddie Mac–the highest it has been since 2010. 

We asked our Chief Lending Officer, Jason Tepperman, to answer some of our questions about how rising interest rates might impact auto refinancing. Here’s what he had to share:

Is it still worth refinancing my car loan, even though interest rates are going up? 

Yes. The savings that consumers can realize by refinancing their car loan are mostly unrelated to the interest rates set by the Federal Reserve. Today, Caribou’s customers save an average of 6 percentage points on the interest rate of their car loan when they refinance. By contrast, the Federal Reserve is expected to increase interest rates broadly by about 3 points this year. There’s still plenty of opportunity to save!

Will rising interest rates impact mortgage and auto refinancing the same way?

The short answer is no. The savings from refinancing your mortgage and your auto loan are generated in very different ways. With mortgage refinancing, most of the savings come as a result of small reductions in interest rates that are set by the Federal Reserve. Because home mortgages are much larger than car loans, even half-point or one-point savings can help. But, when the Federal Reserve raises interest rates–as is now happening–mortgage refinancing soon becomes unattractive.

Unlike mortgages, the savings we generate through auto refinancing don’t rely much on the Federal Reserve’s decisions about interest rates. The savings from auto refinancing come from finding you a lender that will offer a fundamentally better loan than the one you have today. We accomplish this by taking a fresh look at your credit history, bringing deep expertise in auto lending and avoiding the car dealer’s markup.

So, if you were thinking about refinancing your mortgage to save money, you may find it’s even more advantageous to refinance your auto loan.  

How might inflation impact whether it is worth refinancing my car loan?

With gas prices and car-related expenses rising, refinancing your auto loan is a straightforward way to lower your monthly payments. For example, we’re saving people an average of over $100 a month* when they refinance with Caribou.

We’re on a mission to help people take control of their car payments. If you’re interested in refinancing your car loan, we can help you access competitive rates in minutes.

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