If you’re asking yourself if you should refinance your car or get a new one, you’ll want to weigh the decision carefully.

With interest rates still elevated, auto prices remaining high, and the risk of negative equity ever-present, the best financial move isn’t always obvious. But taking a closer look at your current financing, credit profile, and available offers can give you some clarity.

Where rates stand and where they’re going

As of late 2025, auto interest rates remain historically high. The average 60-month APR on new-car financing is in the high single digits, with used-car financing often in the double digits. However, subprime borrowers will likely face steeper rates.

Although the Federal Reserve has begun gradually reducing rates, expectations are modest. Most two-year projections suggest only about a one-point drop, meaning rates are likely to drift downward slowly rather than fall dramatically back to 2020-2021 levels. In short, waiting for “cheap money” to return probably won’t change your situation much unless your personal credit tier improves.

When refinancing makes sense

Refinancing your current financing often makes more sense than replacing your vehicle, particularly if:

• Your current APR is significantly higher (for example, 14%), and you qualify for a meaningfully lower rate now (like 8%)

• You can refinance with a similar or shorter term than your current one, reducing your total interest paid

• You’re currently underwater and want to stop the cycle of rolling negative equity into new financing

Refinancing is less attractive if the new rate is only slightly lower, or if the only way to reduce your monthly payment is to extend the term significantly, which often increases your overall cost and keeps you upside down longer.

When replacing the car might be wiser

Sometimes, a new (different) vehicle is the right choice, especially if:

• Your current car has reliability issues, needs frequent repairs, or no longer fits your lifestyle

• You can get a fair trade-in value, avoid rolling negative equity into new financing, and secure a reasonable rate and payment on a lower-cost replacement vehicle

• A lender or manufacturer promotion offers a much better rate than you could get by refinancing your current vehicle

A rule of thumb

Here’s a simple framework if you’ve been dealing with negative equity or are looking for “second-chance” financing:

Refinance if you can:

• Cut your APR by at least three percentage points

• Maintain or shorten your remaining finance term

• Avoid adding to the borrowed balance

Avoid getting a different car if the only way to afford it involves:

• A higher APR

• A longer finance term

• Rolling in existing negative equity

Deciding whether to refinance and keep vs. trade and replace

Step 1: Assess your situation

You’ll need:

• Your current payoff amount

• Your APR, monthly payment, and the months remaining

• Any refi offers you’ve received: new APR, term, lender fees

• Quotes stating trade-in value

• Details on a replacement vehicle: price, down payment, new finance terms, and the estimated payment

Step 2: Calculate the refi break-even point

If refinancing saves you $40/month and costs $300 in fees, you’ll break even in 7.5 months (300 ÷ 40). If you plan to keep the car longer than that and aren’t extending the term too far, refinancing likely makes sense.

Step 3: Compare full ownership costs

Now, calculate the total cost over the next 36 or 60 months for each option (keep or replace), factoring in payments, fees, maintenance expectations, and the estimated vehicle value at the end of the period. Whichever path results in a lower cumulative cost by month 36 or 60 is the better decision.

Leaning towards replacement?

Although Credit Acceptance doesn’t offer refinancing, dealers in our network can help you finance a different vehicle. You can get started by getting pre-qualified through our website. We’ll then show you the maximum monthly pre-qualified payment, along with some local dealers (we work with over 15,000 coast-to-coast).