New data finds costly confusion over auto financing

A woman in a car at sunset contemplates her potential auto refinancing savingsImage: A woman in a car at sunset contemplates her potential auto refinancing savings

In a Nutshell

Credit Karma found that Americans could save billions on their car loans — but many are unfamiliar with auto loan refinancing or find their auto loans too stressful or confusing.
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For the excited car shopper, no detail is insignificant. The perfect color, state-of-the-art navigation, automatic safety features — just to name a few of today’s “must-haves”.

But are consumers achieving the same level of clarity when it comes to financing?

Maybe not, according to new data generated by Credit Karma. In one recent survey, consumers shared plenty of uncertainty around where they stand on their car loans, from unknown APRs to forgotten loan balances. Others said they felt too stressed out to explore refinancing or simply didn’t know the option existed.

It’s a potentially high stakes situation as auto loan balances continued a six-year upward trend, growing by $23 billion in the second quarter of 2017 alone, according to the Federal Reserve Bank of New York, which tracks economic trends across the U.S.

To better understand the factors at work here, Credit Karma examined auto loans from two central angles:

  • Knowledge of financing: In an October 2017 survey of U.S. car owners who are currently making monthly payments on their car, Credit Karma found that nearly half — 45% — couldn’t recall the annual percentage rate on their loan, which is the true cost of borrowing as it reflects interest and fees. One in 4 (27%) said they didn’t recall their APR because they didn’t want to think about it and found it too stressful or that it was confusing. The number one reason was they used to know it, but had since forgotten. In addition:
    • 1 in 4 (27%) weren’t sure exactly how much they had left to pay on their car loans, with the percentage being slightly higher among 18-24 year olds (30%)
    • 1 in 10 (11%) couldn’t recall the specific dollar amount of their monthly car payment
    • 1 in 5 (20%) weren’t sure exactly how many months they have left to pay on their auto loan
  • Opportunities to save: In a parallel analysis, Credit Karma looked into auto loans held among its 75 million U.S. members. When reflected against data from all U.S. adults, Credit Karma found $37 billion in potential savings from refinancing. This figure was derived by taking aggregated and completely anonymized auto “tradelines” — an industry term for loans appearing on credit reports — and first determining potential savings for Credit Karma members. Then, Credit Karma extrapolated those results using data from TransUnion and the U.S. Census to achieve a roughly representative national snapshot. (See our methodology.)

“We set out to better understand how people think about their auto loans,” said Bethy Hardeman, Credit Karma’s chief consumer advocate. “We were really surprised to find that a lot of people don’t know how much their auto loans are costing them or that they should have a much lower APR. The $37 billion is a big number, but what’s more impactful is how much some people are overspending on their loans on a monthly basis. A monthly savings of $100 or even $50 can make a big difference to a lot of U.S. households — and that’s just for one auto loan.”

Refinancing and your overall auto ‘health’

This data comes as Credit Karma launches a new free auto hub for its members, with the goal of sharing deeper insights into their “auto health.” So far this means pulling together in one centralized place:

  • Potential refinancing and insurance offers
  • Letting you know when your DMV registration expires
  • Recall monitoring
  • Value assessments from the National Automobile Dealers Association, which can help you gauge the right time to sell or refinance.

At the same time, it’s important for consumers to know that not all refinancing offers are created equal and not all are wise to take.

According to experts, refinancing may make sense in the case of falling interest rates, an uncompetitive first loan, or improvements in credit scores.

But refinancing can also put you in a worse position financially if you aren’t careful — or may be impossible if your car is too old or your credit situation has worsened.

Overall, the key risk with refinancing is that you end up paying more than if you had stayed in your original loan. This can happen because refinancing typically extends the term of a loan.

So unless you are in a total financial crunch and must secure lower monthly payments, or your new interest rate will be meaningfully lower, you could end up paying more on a depreciating asset — something that loses value as it ages, like cars — not less.

Going back to the October survey, a slim majority reported they hadn’t considered refinancing because they were pleased with their work negotiating their loan rates. Others were not nearly as confident. Here are the details:

  • 50% believed they were already getting the best rate
  • 14% didn’t want to think about it — “too confusing/stressful”
  • 13% didn’t even know refinancing was an option
  • 10% didn’t know how to refinance

More auto financing tips and advice  

There’s a lot you can do to maximize your car ownership:

If you already own your car

  • Know your APR. If it seems high, investigate refinancing, but be aware of the downsides. Comparison shop different offers. If you are worried about short-term hits to your credit scores, read our primer on how rate shopping affects your scores.
  • Keep up with all recall notices for your car. Estimates from the National Highway Traffic Safety Administration show only 70% of vehicles recalled are fixed.
  • Practice preventative maintenance. Not only will you and your family be safer, but you’ll reap the benefits should you decide to sell your car. Cars in “excellent” or “good” condition generally sell for more than comparable models in “fair” or “poor” condition.

If you are in the market for a car that you plan to finance


Survey on auto financing: Generated by Credit Karma and fielded Oct. 26 – 27, 2017. The survey collected online responses via Qualtrics from 529 U.S. consumers who are over the age of 18, own a car and are currently making scheduled monthly payments on that car.

Credit Karma auto tradelines analysis: To arrive at a total U.S. figure for potential refinancing savings, we began by analyzing auto tradelines for U.S. Credit Karma members by APR and credit score band. Our analyst determined which tradelines were “refinanceable” by applying discounts to each of these bands based on average approval rates and likelihood of receiving savings. That number of tradelines was multiplied by the average interest savings for members who took refinancing offers found through Credit Karma .

Next, since not every U.S. car owner is a member of Credit Karma, we had to extrapolate the data to represent the wider U.S. population, which then summed to the $37.2 billion. We made the assumption that proportion of individuals with an auto trade line is the same for both Credit Karma members and the broader US population. To get this representative number on a national level, we used:

  • The average interest savings for CK members by scoreband from the analysis above
  • The number of Credit Karma users by scoreband
  • TransUnion data on the percentage of all Americans by scoreband
  • 2016 Census estimates for the size of the U.S. adult population

For more information about the survey or data analysis, please email

About the author: Katie O’Connor is the former director of content at Credit Karma, where she led the editorial team in its mission to make financial education and literacy more accessible to all. Read more.