Many people find that picking out a new car can be fun, while dealing with the financing details can be stressful. The good news is that you aren’t tied to your original auto loan — you can keep your vehicle and refinance to save money.
How Does Auto Refinancing Work?
You may wonder what happens when you refinance your vehicle. Simply put, refinancing is essentially trading your existing auto loan for a new one with more favorable-to-you terms.
When you decide to refinance your auto loan, it’s important to do your research. Most financial institutions publish their rates online so you can easily shop around. You can view TwinStar Credit Union’s current rates here on our website.
After you’ve settled which financial institution you’d like to use, you’ll complete their loan application and work with them through the approval process. Once approved, the new lender will pay off your existing debt to close out your (now) old auto loan. You’ll then have a brand-new auto loan, likely with a new term length and/or interest rate, and all future payments will be made to this new lender.
Note that before you proceed with a refinance, it’s wise to verify that your existing auto loan does not have any pre-payment penalties. Some lenders will charge you extra to pay off your loan early, and those fees should be accounted for when deciding if it is financially worth it to refinance your loan.
Why Refinance My Auto Loan?
It usually makes sense to refinance your auto loan if your financial status or the overall market have improved since you bought your vehicle. The main goal of an auto loan refinance is to change your loan so your costs to finance the vehicle decrease. Consider the following situations when deciding to proceed.
- Your payment causes financial hardship. If you’re having difficulty making your current monthly car payment, refinancing to a lower monthly payment may alleviate pressure and offer increased flexibility in your monthly budget
- Your credit score has increased. Making your monthly payments on time helps improve your credit score. If your credit score has increased since you first purchased your car, you may qualify for a lower interest rate and save money.
- Interest rates have fallen. The financial market is in constant flux with interest going up and down. You can capitalize on savings if current interest rates have fallen and are lower than the interest rate of your current auto loan.
- Relationship changes. You can use the opportunity to add or remove a co-signer when you refinance your loan. This can be helpful if you were recently married and you’d like to add your spouse to your auto loan, or if someone co-signed on your initial loan and you’d like to separate them from your debt.
How Can I Save Money With a Credit Union Auto Refinance?
To fully understand how refinancing can save you money, remember that your monthly payment is made up of two components: Your principal amount, or the amount of money that pays down how much you initially borrowed, as well as the interest due to your lender for borrowing the money.
When altering one or both elements, which is done during a refinance, the amount of your monthly payments and how much interest you pay over the life of your loan will change. Ideally, these changes will be for the better so you can save in the short and long term.
Many factors determine just how much savings you’ll see, but here are some ways auto refinancing at a credit union can contribute to more cash in your pocket.
- Lower interest rate. Refinancing with a lower interest rate means that every month, the amount of money you pay in interest will go down and contribute to an overall lower monthly payment. Over the life of your auto loan, paying less interest can add up to significant savings.
- Shorter term. If you refinance and shorten the length of your loan, you’ll pay your car off faster and eliminate the car payment from your monthly budget that much sooner. Many financial institutions also offer lower interest rates for a shorter loan timeframe, meaning the overall cost of your loan will also be less.
- Lower monthly payment. The payments you’ve made on your car thus far will lower the amount of money you need to borrow. Financing less while changing the term and/or rate of your loan can lead to a smaller monthly payment, freeing up space in your budget.
- Extra cash. This can be helpful if you have positive equity in your vehicle. A cash-out refinance allows you to pull out that equity — calculated by subtracting the remaining loan balance from the market value of your car — as cash during the loan transaction. You can use it to pay off other debts that have a higher interest rate, effectively consolidating debt into your new auto loan with a lower interest rate to save money.
Refinance Your Auto Loan with TwinStar
To see if refinancing makes sense for you, calculate your new estimated payment amount using TwinStar’s loan payment calculator. When you’ve got the green light, TwinStar offers low rates with a quick, easy approval process and no payments for the first 90 days of your new loan*. Learn more about how our auto loans can put you in the driver’s seat by calling us at 800.258.3115, applying online, or visiting your local branch.