A great car gives you an easier commute and more peace of mind on the road. Don’t let a not-so-great auto loan keep you from enjoying your ride.
If your current auto loan comes with high monthly payments and financial stress, it’s time to consider refinancing. When you refinance an auto loan, you’re swapping out your current loan for a new one, which can help you:
- Pay less interest
- Lower your monthly payment by extending your term
- Own your car sooner by switching to a shorter term
Here are four factors that will determine if refinancing is right for you:
- Interest Rates
When you finance your vehicle, your interest rate determines how much you ultimately pay. What may seem like a tiny difference between two rates could actually have a major financial impact.
For example: Say you owe $20,000 on your auto loan. With six years to pay it off and a rate of 5.99%, you’ll pay $331 each month – and at the end of the term you will have paid a whopping $3,858 in total interest.
But what if you qualified to refinance this loan to a low rate of 3.49% and a three-year term? The shorter term would raise your monthly payment to $586, but the much lower rate would accrue just $1,094 in interest. That’s almost $2,800 less than before. This is a dramatic example, but it shows how much you could potentially save.
- Your Credit Score
So how do you get a low rate? There are a variety of factors, including nationwide rates that influence what auto lenders charge. But one of the biggest factors is your credit score.
Even if you got your auto loan at a time when average loan rates were low (as they have been in recent years), improvement in your credit score may help you qualify to refinance with a lower rate, which saves you money every month.
If you were early in the process of building your credit when you received your current auto loan, making on-time payments for a year or so could significantly help your credit score, which may help you qualify for a much lower interest rate now, especially when you refinance with a more flexible credit union car loan.
- Length of Your Loan Term
Refinancing makes sense if your current loan is still relatively new. That’s because, at the beginning of the loan term, much of your payment is going toward the loan’s interest rather than its principal. The sooner you can secure a better rate, the more you could save.
- Improved Income
Maybe you got a great new job or sweet raise. Improved income can boost your monthly budget and ability to make larger monthly payments. If your income has risen, consider shortening your loan term when you refinance.
As we saw in the example above, switching to a shorter loan term will mean bigger payments, but it also helps you save on interest and own your car sooner.
Refinance With Your Local Credit Union
Credit unions have earned the trust of their members by offering great rates on all kinds of loans, and helping drivers refinance car loans is one of our specialties. If you’re tired of overpaying for your auto loan, refinance with us for a low rate and monthly payment that fits your budget.
Here are some additional factors that will determine if refinancing is possible and financially practical.
- Vehicle age: Cars lose value (depreciate) over time, so lenders typically won’t refinance a vehicle that’s more than several years old or has racked up a lot of miles.
- Value: This is something to consider if extending your loan term, which could have you paying far more on your auto loan than the vehicle is worth. While it’s important to keep your loan payments manageable, don’t lose sight of how much you’ll pay in interest over the long term. Our auto loan calculator can help.
- Fees: Be on the lookout for application fees from your new lender and prepayment penalties from your original lender, which will add to your refinancing cost.
Get Up to $600 When You Refinance1
Switch to an auto loan from Dover Federal Credit Union and save money each month with our lower rates. Refinance today and earn 1% Cash Back – up to $600!1 Learn more and get started.