Smart Ways to Save Money on Car Ownership

Jump To: Why refinance in the first place? | What to expect when refinancing | What are the benefits of a lease buyout loan?

As vehicle costs continue to climb, drivers are feeling the financial pinch when it comes to many aspects of car ownership. Auto insurance companies are raising their rates, fuel prices continue to rise, and car loans are saddled with high interest rates or expensive add-ons.

Because people appreciate breathing room in their budget, not to mention extra cash in their wallet, the automotive experts at Edmunds have compiled smart solutions to make car ownership more affordable. Whether you prefer to lease or purchase outright, we've got several ways you can save.

One of the most effective ways to spend less is by replacing an existing auto loan with a refinanced one. A lower interest rate and/or an extended term can significantly lower your monthly car payment. Lessees who are considering buying their car or truck at the conclusion of a multi-year lease agreement can also benefit from a low-interest loan.

Refinance your car loan

Why refinance in the first place?

Refinancing presents several ways to decrease your monthly bills, including lowering your car payment. Interest rates go up and down, and they might have been higher when the driver purchased the vehicle initially. Refinancing a car loan could mean a lower interest rate than the one originally affixed to the purchase. Or if the driver's credit rating has improved since the time of the original loan, a refinanced rate could be a smart and easy way to reduce monthly car payments as well. A driver could lower the monthly payment by refinancing into an extended loan term with or without a lower interest rate.

Other benefits of refinancing include tailoring the car loan to better suit what the driver values most right now, versus at the dealership when the deal was first done. For example, refinancing allows for a co-borrower to be added to or removed from the loan. It also presents the opportunity to replace added coverages with lower cost offerings. This helps maintain coverage without adding to the cost of a loan payment. It also allows for add-ons the driver may highly desire, such as gap insurance, which covers loan deficiency balances in the event a vehicle is stolen or totaled and the driver owes more on the loan than its current value.

Extra-cost coverage might include an extended powertrain warranty, a maintenance plan, or coverage specific to a vehicle's wheels and tires. While these may have been desirable when the driver agreed on the deal, some may become lower priorities later in the loan. For example, if the driver decides not to keep the vehicle long-term, extra money paid for an extended warranty becomes unnecessary. Conversely, if a lower interest rate of a refinanced loan leads to sizable savings, the driver could apply the savings toward peace of mind and add extra coverage, such as a vehicle service contract, that may have previously been out of the budget. This protects the driver from having to pay out of pocket for pricey repairs as a vehicle ages and is prone to mechanical problems.

Financing at the dealership, at the point of purchase, is the most common way to help streamline the car buying process. But it can lead to additional fees or higher rates if the shopper is too focused on completing the transaction in the moment. If you take advantage of online resources to find the best deal before arriving at the dealership, you can often find a better rate. The same holds true once the deal is complete, however. Even very recent car purchases can be refinanced — there's no required waiting period to prevent a driver from securing a better deal.

A loan marketplace like RateGenius can be a great resource that allows for instant access to competitive rates from a wide range of lenders. Having options is always a great way to find a good deal, but depending on the lender, there might not be a loan payment due for 30 to 60 days, too.

What to expect when refinancing

It's understandable that drivers who haven't refinanced might assume the process is as complicated and time-consuming as buying a vehicle. Car shopping can be a stressful experience, and sometimes the idea of refinancing seems comparable to opting for an elective root canal. Jokes aside, the process doesn't have to be painful. The key is understanding the steps involved. That's why a solution like RateGenius makes it easy, by presenting all of the available options.

When refinancing, the driver's credit rating is crucial. If the credit score has improved significantly, a much better rate may be available. The vehicle itself will also need to meet certain criteria related to its age, condition and mileage to qualify. Hurdles may occur if there is lots of time left on the loan agreement (which typically runs from 36 to 60 months), but the car's odometer reading is very high. A lender must determine the loan-to-value (LTV) ratio by comparing the amount owed on a loan to its actual market value (ADV), and if a lot more is owed than the car's present value, refinancing could be difficult or impossible.

The good news is that many car owners think they have to wait a specific period before refinancing an auto loan, but that's incorrect. There is no waiting period, and a driver is free to refinance almost immediately after closing without the person's credit score being adversely affected. Credit bureaus view it as a single credit inquiry when someone applies multiple times for the same product within a 45-day period.

Purchase your leased car with a lease buyout loan

What are the benefits of a lease buyout loan?

Drivers who prefer leasing might be swayed to purchase their vehicle due to the volatile state of the used car market. Edmunds' data has found that despite the 6.4% price drop on a used car, prices are still at historically high levels. The average price of a used vehicle remains about 44% higher than it was five years ago. This works to the advantage of lessees who are open to purchasing their vehicle at the conclusion of the lease agreement.

Purchasing your leased vehicle has a number of other advantages. To start, if you simply enjoy the car you're driving, this route allows you to stick with a sure thing. You'll be comfortable navigating the car's technology and infotainment system and familiar with its fuel mileage and how it feels from behind the wheel.

Buying your lease vehicle can allow for greater driver autonomy, especially in regard to the annual mileage limits that come with any lease. A low-mileage lease agreement might have seemed like a great money-saving idea, but it can turn into a burden when routine driving exceeds these limits. When the odometer is accelerating far beyond a low-mileage lease's typical 8,000- to 10,000-mile yearly limit, buying the vehicle is a viable option to avoid expensive mileage penalties incurred upon handing the car back at the lease's end.

To understand your available options, refer back to the lease contract and know the vehicle's buyout price. This is the car's estimated value determined at the time of the original lease agreement. Also known as its residual value, it's the agreed-upon amount for which you can buy a vehicle at the end of a lease.

However, the turbulent nature of the new and used car market has upturned this once routine calculation.  

Just two to three years ago — before the price of cars spiked due to the pandemic and microchip shortages — the car's market value could be significantly higher than its residual value. Edmunds' data uncovered the trade-in value for a 2019 model year car with a lease ending in 2022 was 33% higher than its original estimated lease-end value. Now, an increasing number of automakers have enacted stricter policies in regard to lease buyouts, particularly as they relate to third-party buyers. This was done to get off-lease vehicles back onto dealership lots following the pandemic and microchip shortage, which cleared many dealers of available stock.

A leased vehicle with a high market value could make it tempting for the lessee to buy the car in one lump sum. However, a lease buyout loan can be a savvy way to avoid handing over a large sum of cash all at once. You may be able to skip the dealership altogether and let Tresl work directly with the leasing company. Tresl is an online platform geared specifically to lease buyout loans and it'll handle everything on prequalified lease offers, including payoff terms and retitling of the vehicle. This spreads payments over a longer period, so there isn't the need for a driver to sink all his or her savings into buying an off-lease vehicle.