How Rising Interest Rates Are Impacting Auto Refinance Deals

Dakota DeRego
Jul 1
4 min read

Over the past couple of years, the Federal Reserve has steadily increased interest rates in response to inflation and broader economic concerns. These rate hikes are having a direct impact on many types of borrowing—including auto loans. For car owners who are considering refinancing their auto loan, the time to act may be now.

In this article, we’ll break down how rising interest rates are affecting auto refinance deals, what it means for your monthly payment, and why locking in a new loan sooner rather than later might save you money.

Why Are Interest Rates Rising?

The Federal Reserve, commonly referred to as "the Fed," controls a key interest rate called the federal funds rate. This is the rate at which banks lend money to each other overnight. When inflation rises, the Fed typically raises this rate to slow down spending and stabilize the economy.

Since 2022, the Fed has raised interest rates multiple times, making borrowing more expensive across the board. This doesn’t just affect mortgages and credit cards—it directly influences auto loan rates too. When the Fed rate goes up, lenders adjust their rates upward for both new and used auto loans, as well as refinancing products.

How Higher Rates Affect Auto Loan Refinancing

If you already have an auto loan, you might be wondering how rising interest rates impact your refinance options. Here's the simple truth:

When rates rise, the cost of borrowing increases. This means that the interest rate you’re offered today may be higher than what you would have qualified for a year or two ago. A higher rate leads to:

Higher monthly payments
More interest paid over the life of the loan
Reduced overall savings from refinancing

For example, let’s say you currently have a loan with a 7% interest rate and you’re hoping to refinance. If market rates have climbed to 8% or 9%, the potential monthly savings shrink—or in some cases, disappear altogether.

However, there’s still good news: many borrowers are sitting on older, high-interest auto loans that may still benefit from refinancing, even in today’s rate environment.

Why It Still Makes Sense to Refinance Now

Even with higher national rates, refinancing could still lower your payment or total interest—especially if your original loan came with a double-digit rate, or if your credit has improved since you first financed your vehicle.

Here are a few key reasons why refinancing sooner rather than later could still be a smart move:

Avoid Further Rate HikesThe Federal Reserve has signaled that more rate increases could come if inflation persists. Locking in a refinance rate now could help you avoid even higher costs in the future.
Shorten Your Loan TermIf you’re in a better financial position now, refinancing into a shorter loan term at today’s rate may still help you pay off your car faster and with less total interest.
Lower Monthly PaymentsIf your budget is tight, refinancing into a longer-term loan can reduce your monthly obligation—even if the rate is slightly higher.
Improved Credit = Better OffersIf your credit score has improved since your original loan, you may still qualify for better refinance rates than when you first financed, helping offset market rate increases.

Real Example: What a Refi Could Look Like in 2025

Let’s say you took out an auto loan in 2021 with an interest rate of 10.5% due to poor credit. You’ve since improved your credit score, and refinance offers today are in the 7%–8% range for your profile.

Even with the Fed’s rate hikes, you could potentially reduce your interest rate by 2–3 percentage points. On a $20,000 loan with 48 months remaining, this could save you $40–$60 a month—or more—depending on your exact terms.

While every borrower’s situation is different, the potential for savings is real for many people.

Next Steps: Should You Refinance Now?

The decision to refinance depends on your current loan rate, your credit profile, and how long you plan to keep the car.

Here are a few steps to help you decide:

Check Your Current Loan DetailsKnow your interest rate, remaining balance, and months left on your term.
Get a Free Rate QuoteLenders like Digital Auto Refi Co make it easy to check refinance rates with no obligation and no impact on your credit.
Compare OffersMake sure to compare your current loan against new offers to see the real monthly and lifetime savings.
Act Before Rates Go HigherIf the Fed raises rates again this year (as many analysts expect), today’s rates may soon look like a bargain.

Final Thoughts: Timing Matters

The auto refinance market moves with the broader economy. While rates have increased, there are still strong opportunities for borrowers—especially those with older, high-interest loans or improved credit profiles. The key is to act quickly, do your homework, and lock in terms before rates climb further.

At Digital Auto Refi Co, we’re helping customers every day reduce their payments, shorten their loan terms, and avoid paying more interest than they need to. If you’ve been considering a refinance, there’s no better time to check your options than now.

👉 Want to help friends and family save too? Check out our Referral Program and earn rewards when you refer someone who refinances with us.