Should I Refinance My Car as Interest Rates Rise?

Auto loan refinancing is simple: You take out a loan with a new lender to pay off the balance on your current auto loan. In some cases, refinancing a car loan is a smart financial move as you might be able to save money on your car payment.

However, knowing if and when to refinance a car loan can be tricky, especially with rising interest rates. Fluctuations in interest rates can impact the ability of consumers and businesses to take out and refinance loans. That’s why it’s critical to do your research before you apply.

From the impact of high interest rates on lenders to the situations in which it makes the most sense, we’ve gathered everything you need to know to help you make an informed decision.

What is the impact of rising interest rates on lenders?

In an effort to balance out the highest inflation rates in decades, the Federal Reserve (Fed) has raised interest rates. When the Fed increases interest rates, banks and lenders use it as a benchmark to adjust the interest rates of loans. So when interest rates increase, they raise rates for most forms of credit including personal loans, home equity loans, and credit cards.

How do interest rates affect different types of personal loans?

The impact of higher interest rates on a personal auto loan varies based on the type of loan you have and your unique borrowing terms. Here’s what to expect:

Variable-rate loans

Personal loans, such as an auto loan, usually have fixed interest rates. Fixed interest rates stay the same over the life of the loan. However, some personal auto loans have variable interest rates.

With a variable rate, interest rates can change over the life of the loan depending on how the market is doing. An increase in interest rates on your loan means your monthly payment will increase too. This may cost you more in the long run.

If you don’t know whether you have a variable-rate loan, contact your lender’s customer service department to check. You can also view your original loan documents, which will list what kind of interest rate you have.

New loans

To be clear, if you currently have a personal loan with a fixed interest rate, your rate won’t change. However, if you’re taking out a new personal loan, you may pay more in interest because lenders are increasing their interest rates for new borrowers.

Should you refinance your car when interest rates are high?

Refinancing a car loan may be a good choice for you, but it depends on your financial goals, plus the type of loan and rate you currently have. You need to keep in mind that a loan refinance requires you to take out a new loan.

This means that you may not qualify for competitive interest rates because lenders are currently increasing them. Before you apply, you need to crunch the numbers to understand if it’s a smart financial move for you.

Reasons why you may want to refinance your car loan

Refinancing a car loan while interest rates are high may feel like a questionable financial decision, but there are some situations where a car loan refinance can help you:

You can qualify for a lower interest rate

Although interest rates have gone up, there’s still a chance you may qualify for an interest rate lower than the one you currently have. Even a slightly smaller interest rate can save you a lot of money over the life of a loan. Before you apply for a car refinance loan, get prequalified to understand what kinds of terms you may qualify for.

Pro tip: Because car loan refinancing requires you to pay off your current loan early, you may have to pay a prepayment penalty and other fees to your current lender. Check your contract before you commit to make sure the cost of the fees won’t outweigh the benefits of a refinance.

You want stable monthly payments

It’s hard to budget when you have unpredictable monthly loan payments. If you currently have a car loan with a variable interest rate, not only are your monthly payments irregular, but you may be paying a lot more in interest.

If you have good credit, you can refinance your variable interest rate car loan into a new loan with a fixed interest rate. With a fixed interest rate, you’ll have a single and stable monthly loan payment. This should help you plan for your financial goals, because you’ll know exactly how much your payment will be each month.

Next steps on auto loan refinancing

Refinancing a car loan is an easy process and you can do so even if interest rates are high. However, it may be best for borrowers who can get a lower interest rate or want a stable monthly payment.

To decide what’s best for you, shop around for lenders, get prequalified, and use a personal loan calculator to run the numbers to see how much refinancing can save you.

Upstart Network, Inc. (NMLS #936133) is not a lender. All loans on its marketplace are made by regulated financial institutions.

All mortgage lending is conducted by Upstart Mortgage, LLC dba Upstart Home Lending. (NMLS #2443873). Equal Housing Opportunity.

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Should You Refinance Your Car in 2026?