Reasons to Refinance Your Auto Loan

Car, motorcycle, and RV loans come with a range of terms and conditions that can dramatically affect how much you pay over the course of the loan. There are a variety of lenders available for customers to choose from, but some financial packages will result in you paying more interest over time.

If you’ve ended up with a monthly car payment or loan term that doesn’t work for you, the good news is that you can refinance your auto loan with a credit union. A credit union can pay off your loan and then set you up with a new one with better terms and interest rates.

It’s important to understand potential reasons to refinance your auto loan. Refinancing is not an automatic option for all borrowers, and sometimes, it may be beneficial to wait a little longer before refinancing. Here are the reasons to consider refinancing your auto loan.

Getting Away from Dealer Financing

Dealerships often advertise financing packages that claim to have 0% interest rates for an introductory period, but very few customers qualify for these rates. You may assume that the rates you receive are the best available, but you could have earned a better rate from a credit union in many cases.

As non-profit institutions, credit unions are just as regulated as banks and can usually offer better financing than car dealerships. If you settled for a higher interest rate because you thought the dealership would provide you with the best rates and terms, it’s not too late to refinance.

Improved Credit Score

Anytime you apply for a loan, the loan term, and interest rate will be at least partially tied to your credit score. If you applied for a car loan when your credit score was low, refinancing your auto loan with an improved credit score can help you secure a new, lower rate.

Keep in mind that a slight change in credit score is unlikely to make a big difference in your overall interest rate. If you think your credit score may improve more soon, it may be worth it to wait a little longer and then refinance. A credit union loan officer can go over your credit report with you and discuss the options available to you.

Reduced Family Income

If your financial situation changes after you buy a car, you may find yourself struggling to pay all your bills on time each month. A non-profit, community-based lender like a credit union will often be willing to refinance a car loan to make it more affordable for you each month.

Lower monthly payments will increase your loan length and slightly increase the total amount you pay over the life of your loan. However, this trade-off may be well worth it if your finances are stretched thin and you need to free up some money for other ongoing expenses.

Better Interest Rates

Interest rates fluctuate based on the prime rate, and this rate decreases when the economy is struggling in order to encourage people to buy things. Refinance rates tend to be very favorable during this time as well.

Refinancing at a new, lower interest rate may save you money in the long term, so make sure to monitor the news to stay up-to-date on market fluctuations. Your credit union may also reach out to you with information about favorable refinancing rates.

Refinance Your Auto Loan

Need a Shorter Term

Car values depreciate quickly, and a car’s overall condition may drop more sharply than expected if it ends up having significant maintenance problems. If you decide you want to pay off a car sooner rather than later, it may benefit you to seek a full refinancing plan instead of just paying it off in a lump sum.

This option makes the most sense if a lower interest rate is available to you and you agree on a shorter loan repayment term. If your credit score has increased or the overall market rates have decreased, this situation could benefit your budget. Consult with a credit union loan officer to determine if a shorter loan term could result in significant savings or simply free you from the financial obligation faster.

Assessing All Your Options

Instead of just refinancing a car loan, you can also consolidate multiple loans under one new loan from your credit union. This process requires the credit union to pay off two or more of your existing loans and then have you make one monthly payment. Depending on the exact terms you qualify for, you could save hundreds of dollars over the course of a year.

The best approach is to talk directly to a credit union about your financial situation and overall goals. T&I Credit Union is committed to serving the community with honest, insightful financial services and information. We serve a 7-county area around Detroit and are well-versed in the auto market.

We can set you up with auto, RV, boat, and motorcycle loans, even if your credit is less than perfect. We also have a full range of standard account services, like checking and savings. Call us today at (248) 397-9571 to learn more about our refinancing services and membership benefits.

About Carol Jones

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