Working with a credit union has many benefits when it comes to refinancing an auto loan! You may have seen options for refinancing on popular online tools like Credit Karma, but if you’re considering knocking your auto loan payment down, we highly recommend looking to your local federal credit union right here in Batavia! Credit unions can offer very competitive interest rates, and in today’s economy, a few percentage points can go a long way on a monthly payment.
Today on the blog, we wanted to go over a few reasons why someone should look into refinancing, and when it should happen.
So, When Should You Refinance Your Car Loan?
The obvious reasons to refinance are (a) lower your interest paid, and (b) lower your monthly payment. There are a few other benefits and situations we’d like to cover.
When You Can Lower Your Auto Loan Rate
Rates are not always in a place to refinance, but when they move to a rate lower than when you bought the car, you may want to strike while the iron is hot. Auto lenders typically fall gradually in line with cuts from the Federal Reserve. As we see high rates and inflation potentially moderating, it’s wise to keep an eye on rates lowering and potentially refinancing your vehicle, especially if you purchased when rates were at their highest.
When You Improve Your Credit Score
Rates are not exactly something we can control, but being fiscally responsible and improving our credit scores is something we can control. Regardless of what interest rates are, if you can improve your credit score, that could also help you get a lower rate on your auto loan. If you purchased the car with a lower credit score but have improved it since, this could mean monthly payment and interest savings.
If you were to pay off a credit card for example, you could get a lower rate because it reduces your credit utilization ratio and also reduces your debt-to-income ratio (DTI), and that too could help reduce your rate.
Another way to boost your score is to consolidate your credit card debt. Many individuals have maxed out a credit card in the last few years, but if you can consolidate and get yourself on track, that could help you look better on paper and lower your interest rate.
When You’re Struggling to Make Payments
If something has changed since you bought your car and you’re having a hard time keeping up with monthly payments, it may be a good time to explore refinancing. Let’s say your income dropped or you had a surprise expense pop up; in this case, you may be able to make your monthly payment more affordable by extending your loan term. Regardless of interest rate, you could stretch out your loan a bit and thin your monthly payments, but be aware that this could end up causing you to pay more money in interest.
When You Financed Through a Dealer
Sometimes dealers have preferred financing options that involve them receiving a cut from marking up their financing. You may have a higher rate than you would have if you had shopped around a bit before purchasing. This is one big reason why we always recommend meeting with us before you go into buy a car, regardless of whether you’re buying new or used. A credit union can offer competitive rates and refinancing through a credit union after buying a car from a dealer could lower your interest rate, monthly payment, and total interest on the vehicle.
When You’ve Paid Off Enough to Have Positive Equity
When refinancing, lenders will look at your equity in the vehicle. If you have taken care of the vehicle, you may have a difference between what you owe and what the car is worth. The more equity you have in the car, the better. If your car is worth $30,000 and you only owe $20,000, for example, then you have a positive loan-to-value ratio. This can help to potentially lower your interest rate because the lender is taking less risk.
These are just a few common reasons why it might be the right time to explore refinancing your vehicle. There are always some drawbacks and specifics that may impact your personal experience with refinancing, but it never hurts to explore your options! If you or someone you know is looking to lower their monthly car payment, it might be a good time to stop down to meet with someone from TVFCU to see what we can do for you! If you’re in the market for a new or used vehicle, it may be beneficial to explore what our credit union can do to get your monthly payment as low as possible.
Give us a call at (800) 722-8224 or stop by our branch at 10 Jefferson Square, Batavia, NY 14020 to discuss your car loan today!
