Refinancing Your Car Loan: What You Need to Know

Refinancing a car loan can lower your interest rate and monthly payment, adjust your repayment term, and even tap some of the equity you have in your vehicle. 

When you refinance a car loan, you are simply replacing your existing loan with a new one, typically through a different lender. Sounds easy. But before you sign the dotted line, take the time to do your homework and make sure refinancing is a good financial move for you. Here are a few things to consider before you apply.

When Refinancing Can Make Sense

There is no “best time” to refinance your car loan – if it saves you money, it is a good time. But there are a few situations when refinancing makes the most sense.

Rates Have Gone Down – If you got your car loan when rates were high and they have since come down, refinancing could be a good option.

Your Credit Score Has Improved – Even if interest rates haven’t changed significantly, improving your credit score may be enough to get a lower rate.

Your Car Was Financed Through a Dealer – You could be paying a higher rate based on the convenience of financing at the dealership through another lender.

You Need a Lower Monthly Payment – If your budget is tight and you need to reduce your monthly car payment, refinancing may be a helpful move whether interest rates are lower or not.

You Have Equity in Your Car – If your car is worth more than you own, you may be able to take some cash out by refinancing your loan to use for other expenses or financial obligations.

You Have Issues with Your Current Lender – If you are facing financial challenges and your current lender is not willing to work with you, seek out a financial institution with a reputation for good customer service, such as a credit union.

When Refinancing May Not Make Sense

Even if you can get a lower monthly payment or interest rate, there are situations where it may make sense to hold off on refinancing.

Your Current Lender Charges a Prepayment Penalty – Check your loan documents to see if your lender will charge a prepayment fee. Then compare the cost of the prepayment to the total possible savings from refinancing.

You Are Close to Paying Off Your Loan – You may be able to get a lower monthly payment, but you will likely extend the term of your loan and pay more interest over time.

Your Car is Older or Has Significant Mileage – Some lenders may not be willing to refinance a loan for a high mileage, older car. Be sure to ask about this when shopping around for a lender.

You Are Upside Down on Your Loan – If you currently owe more than the car is worth or if you are behind on your loan payments, a lender may view refinancing your loan as too risky. 

Get Ready to Apply

If refinancing your existing car loan looks like the right financial move for you, here are a few things you will need to do.

Review Your Current Loan – Check to see how much time you have left on your loan, your interest rate, outstanding balance and if the lender will charge any prepayment fees.

Check Your Credit Score – Knowing your credit score before you apply to refinance will help you find the best lender and loan option.

Compare Lenders – Shop around. Interest rates will vary by lender. Plus, some lenders will offer special promotions and deals that can save you money.

Determine Your Potential Savings – Once you receive some quotes, compare the best offer with your existing loan to determine if refinancing is worth it.  You can calculate your potential savings with this easy Auto Loan Refinancing Calculator.

Submit An Application – Make sure you have the necessary paperwork on hand. Lenders may ask you to provide a payoff statement, proof of insurance and copy of title application. Once approved, the new lender will pay off the old loan directly. Be sure to check with both lenders to make sure all paperwork and payments have gone through.

If you would like to learn more about auto loans and refinancing options available at Town & Country, reach out to connect with a member services representative by emailing us at info@tcfcu.com, calling 800-649-3495 or book a consultation here.