We have all heard about refinancing a mortgage for a better rate, and a lower monthly payment, but did you know you can also refinance your auto loan?
Credit unions are often able to provide the best rates to their members, and refinancing your car loan could help bring down your monthly costs by lowering your interest rate. When does it make sense to refinance? There are several circumstances when refinancing will save you money now and over the life of your auto loan.
1) You Didn’t Get a Great Rate When You First Purchased Your Car
If you financed your car through a dealership out of convenience, or because they told you that was the only way to take advantage of added incentives when you purchased, it’s possible that you got some nice perks but didn’t get the best rate. Refinancing may very well be a cost-saver for you. Contrary to what the dealerships may tell you, when you took advantage of their incentives, you don’t actually need to maintain financing with them. Just 90 days after you’ve purchased a car that you’ve financed through a dealership, you can look into refinancing.
2) Interest Rates Have Dropped
If interest rates have gone down significantly since you took out your original loan, then refinancing might make good financial sense. The two examples below demonstrate how much Borrower A and Borrower B, who both have a balance of $25,000 on their auto loans, are able to save by refinancing their loans with Infinity Credit Union.
3) Your Credit Score Has Gone Up
If your credit score has gone up recently, congratulations! Even if current interest rates are similar to what you are paying on your existing auto loan, your improved credit situation may now qualify you for a lower rate. The better your credit score, the better the interest rate you will likely receive.
For example, someone with a credit score of 599 or lower may have only qualified for a high rate auto loan when they initially purchased their new or used vehicle. (Did you know that Maine auto loan rates can go as high as 17.99%?) But with Infinity’s new Best In Market Rates, this same person could refinance to a significantly better rate, like 6.34%* for example, which would equate to big savings. (Note: rates are subject to change and this is just an example. To see what you would qualify for, based on our current rates, your credit review and other factors, please Apply Online or contact us).
4) You Need A Lower Monthly Payment
If money is tight on just about everything due to inflation, and you are looking to reduce your monthly expenses, refinancing your car loan may be a good option for you. Not only would refinancing at a lower interest rate help you to accomplish this, but you could also look at whether refinancing with a longer term (adding 12 or more months to the life of the loan, for example) would yield a lower monthly payment. Keep in mind that even if your monthly payment is reduced, refinancing with a longer term may add to your total costs over the life of the loan.
5) When Your Auto Lease is Ending
Although not a typical auto loan refi, you might be looking to purchase your vehicle now that your lease is coming to an end, rather than turning it in to the dealer. In this case, shopping around for a competitive interest rate and term may lead to a lower monthly payment than your original lease payment and you will end up owning the vehicle in the end.
When Refinancing Might Not Be the Right Move
• When your loan contains a prepayment penalty.
Check the fine print on your original loan to see if there is a penalty for paying off your car loan early. (We’re happy to report that there is no prepayment penalty with Infinity Credit Union).
• When you have less than two years left on the life of your loan.
Refinancing your auto loan makes the most sense when you have two or more years left on your original loan. This is because auto loans are often structured so that more interest is paid in the beginning years of a loan, reducing the amount you’d save from a refinance.
• When you have an older car or a car with high mileage.
Some lenders will not refinance loans on a car that is four years old or more, or a car with high miles on it, as the value of the car will continue to depreciate over the life of the loan, leading to a situation where you owe more than the car is worth.
Note: that’s called “GAP” – when you owe more than your car is worth. If you were to get in an accident while you’re in this scenario, your insurance company would only pay you the amount they think your car is worth – not what you actually owe on the car at that point – which could leave you “upside down” on your loan, and not able to replace your vehicle with one that’s comparable or newer. Avoid this situation in the future by asking your Infinity Member Specialist about GAP Protection for your next auto loan.
Why Refinance Your Auto Loan Through a Credit Union?
There are lots of reasons why financing or refinancing a car through a credit union can mean good news for you:
• You are likely to receive a more competitive interest rate than you would through a car dealer or a traditional bank. *To check out Infinity CU’s latest Best In Market Rates , click here.
• You’ll receive more personalized service. With Infinity Credit Union, you’re not just a number, you’re a member of our community and our not-for-profit financial cooperative. And we’re here to help.
• Your chances of being approved for a loan may be better with your local credit union here in Maine than with a big bank or a national lender. Infinity is also happy to help those with less-than-perfect credit histories, because we understand that sometimes we all need a second chance on the path to financial wellness.
If you have any questions about whether it makes sense for you to refinance your auto loan based on your personal circumstances, or you would like to know what interest rate you’d qualify for, feel free to reach out to our team or apply online today!