Every car loan has an interest rate attached to it. There are many factors, like your credit score, that determine car refinance rates. There are some influences, however, that you might not know about. Let’s find out more.

Supply And Demand

Demand actually comes in two forms: demand for a particular car model and demand for credit. When interest rates are raised, demand for a product falls. Conversely, if there is high demand for a car, this might cause a fall in interest rates.

A more direct effect on auto refinance rates is the demand for credit. If there is an increase in the demand for auto loans, then interest rates go up. Also, if there is suddenly an increased supply of credit, interest rates will drop. This overall credit supply depends a lot on how much cash in in the banks for lending. A simple way to think about it is like this: if a lot of people suddenly decide to only pay the minimum on their credit card balances, there is less money in the banks to lend, and loan rates go up.

Get a free auto loan refinance quote from CARCHEX now.

Inflationary Pressure

Inflation also has a direct impact on interest or refinance rates. As inflation rises, so do interest rates.

The Fed

The U.S. Federal Reserve can take action that impacts interest rates. The Fed often makes announcements about how they think the economy is doing, and by doing so make decisions that have a direct influence on auto refinance. For example, the federal funds rate, set by the fed, affects interest rates across all lending sectors. The Fed can also buy or sell securities from banks causing a respective decrease or increase in interest rates.

For this reason, if you are looking to finance, it’s a good idea to keep an eye on the US prime rate. The prime rate is the interest rate the best banks in the nation charge to reliable borrowers. If the prime changes, refinance rates change too.

How The Prime Affects Your Refinance Rate

Car loan interest rates, including refinanced loans, are often based on the US prime rate plus another number called the spread. The spread can factor in things like:

  • Your credit score
  • Where you live
  • The car’s value
  • Administrative costs

As you can see, the list above contains things that are pretty much beyond your short term control. However, the prime rate can change at any time which could have a big impact on refinanced loan payments. If the prime is lower that it was when you took out your original car loan, then it might be an ideal time to refinance.

Timing Factors

The longer the refinanced loan terms, the higher the interest rate. This is because there is more of a chance a loan will be unpaid over a longer period of time.

Reduce Your Monthly Payments

Car refinance rates have a variety of factors affecting them. The best way to know if you can get a lower rate is to check prices with lenders or lending networks.

Get a fast, free, online auto refinance quote from CARCHEX today.

Featured Image Source

Published in CARCHEX Auto Finance Resources by CARCHEX on November 12, 2014