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Refinancing your car loan can be a smart move, but it's not right for every situation. Whether you will benefit depends on several factors.
Here are some important things to consider:
Banks and credit unions review your credit history and score to determine how likely you are to repay what you borrow. When you apply to refinance your auto loan, your lender will perform a credit check. A higher score can help you qualify for a lower interest rate and better loan terms.
If your credit score has improved since you bought your car, refinancing could help you secure a lower rate and reduce the amount of interest you pay. The savings could be substantial. A lower rate could help you save hundreds or even thousands of dollars over the life of your loan.
You can improve your credit score by paying down existing debt, making all of your payments on time, and keeping your credit card balances low. It's also a good idea to review your credit report for errors or outdated information that could be lowering your score.
This chart breaks down when refinancing your car loan is worth it and when it’s not, depending on your credit score:
| Credit Score Range |
When Refinancing Is a Good Idea |
When to Keep Your Current Car Loan |
| 750 and above (Excellent) |
You’ll likely qualify for the best rates and terms |
Your current loan already has a competitive rate |
|
700–749
(Very Good)
|
A good opportunity if your current loan was based on a lower score |
Refinance fees offset the improved rate |
| 650–699 (Good) |
Worth exploring if your score has improved or rates have dropped |
The new terms aren’t much better |
600–649
(Fair) |
It may be possible to refinance if your score is trending upward |
The new terms aren’t much better |
| Below 600 (Poor) |
Concentrate on improving your credit before applying |
Refinancing is unlikely to be approved right now |
Remaining Loan Balance and Term
If you just took out a car loan, refinancing right away may not be possible since most lenders require several months of on-time payments before approving a new loan. If your loan is almost paid off, the potential savings might not be worth the effort. However, if you’re somewhere in the middle of your loan term, refinancing could help you adjust your payments.
Choosing a shorter term can help you pay off your loan faster, save on interest, and become debt-free sooner. On the other hand, extending your term can lower your monthly payment and make your loan more affordable, although it will likely increase the total amount you’ll pay over the life of your loan.
Current Interest Rate vs. New Rates
Interest rates frequently change, and even a small difference can have a big impact on what you pay over time. If rates have dropped since you first bought your car, refinancing could help you reduce your borrowing costs.
When comparing financing offers, you’ll usually see the annual percentage rate (APR) instead of the interest rate. The APR includes the interest rate and any additional costs or fees, like origination or administrative fees. It gives you a clearer picture of the loan’s true cost.
Prepayment Fees
Some lenders charge a penalty if you pay off your car loan early, so it’s important to review your loan agreement before refinancing. Look for any clauses that mention early payoff fees. You might be charged a flat amount, a percentage of your remaining balance, or the full interest that would have been owed over the life of the loan.
If your current loan includes a prepayment penalty, be sure to use an auto loan calculator to determine whether refinancing will still save you money.
The process to refinance a car is similar to obtaining your original financing. You're essentially obtaining a new loan to replace your current loan, except with better terms.
Here's how to refinance your car loan from start to finish:
Take a look at your current auto loan to see if refinancing will save you money. Review your interest rate, remaining balance, monthly payment, and how much time is left on your term. It's also a good idea to check for any prepayment penalties that might apply if you pay off your loan early.
Not all lenders offer the same refinancing deals, which is why it’s important to shop around before making a decision. Don't just look at the interest rate. Also consider the loan terms, fees, and level of customer service they provide.
Credit unions — like Credit Union of America — typically offer the best rates and minimal fees. They're not-for-profit and member-owned, and their primary goal is to serve members' needs instead of earning profits for shareholders.
To see how much you could potentially save, take a look at the chart below showing recent national average interest rates from banks and credit unions:
| Loan Type |
Banks (National Average)
|
Credit Unions (National Average) |
Difference |
| New Car Loan, 60 Months |
7.49% |
5.75% |
1.74% |
|
New Car Loan, 48 Months
|
7.40% |
5.63% |
1.77% |
| Used Car Loan, 48 Months |
7.79% |
5.82% |
1.97% |
| Used Car Loan, 36 Months |
7.75% |
5.70% |
2.05% |
Having the right documents ready before you apply can make the refinancing process faster and smoother.
Here’s the personal information you’ll need:
Original car loan documents: Vehicle identification number (VIN), your current monthly payment, remaining balance, and APR.
Driver’s license, Social Security number, and proof of address: To verify your identity and residency.
Vehicle registration and insurance information: To confirm ownership and coverage.
Proof of income: Such as recent pay stubs, tax returns, or bank statements to verify your financial information.
If you already have your documents ready, the application process is straightforward. Credit Union of America makes refinancing simple and convenient. You can apply online, by phone, or in person at your nearest branch.
If approved, review and sign your new loan agreement, which outlines the loan amount, interest rate, payment amount, and term length. Once the paperwork is finalized, your new lender will pay off your original loan, and you’ll begin making payments on your new one.
Be sure to confirm that your old loan is fully paid off. You now officially have a new loan that helps you save money.
Refinancing your car loan can help lower your payments, reduce your interest rate, or pay off your vehicle sooner. It's a smart way to improve your financial flexibility.
Ready to see how much you could save? Check out our low auto loan rates. Our team is here to help you get a great deal so you can keep more of your hard-earned money and reach your financial goals faster.
SEE OUR AUTO LOAN LOW RATES
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