5 Reasons to Refinance an Auto Loan

You have a lot of options when it come to rearranging your budget. You’ve likely looked at your grocery spending, electricity bill and savings accounts, but did you know you could be saving money on your current vehicle?

If you’re looking for ways to better your financial situation, it might be a good time to consider refinancing you auto loan. And, no, you don’t need to scrap entertainment spending or stop eating out altogether—restructuring you auto loan can be a simple and painless way to save time, save money and get your budget on track.

So how do you refinance your car loan? Let’s start with the basics.

All you need to get started is your initial purchase documents and a basic understanding of your credit history. Once you’ve gathered those, head over to your preferred financial institution to speak with someone about their refinancing options. Your goal is to get a shorter loan, one with a lower interest rate or, if possible, one that offers both.

Still not convinced? Take a look at these five reasons to refinance your auto loan.

You want to shorten the length of your loan.

When you check your auto loan statement, does it seem like you’re not getting any close to paying it off? You’re not alone.

But we have good news: Aside from getting a new set of wheels, one of the great things about purchasing a car is that there are numerous options when it comes to financing. You’re not necessarily stuck with the contract you originally signed.

If you didn’t end up with favorable terms during the initial purchase, consider adjusting the term to pay it off more quickly. Saving yourself a $1,000 or more over the term of your loan is well worth the effort.

Interest rates have dropped

Interest rates change over time. When those rates improve, that’s your moment to consider refinancing.

If you purchased your vehicle at a rate higher that 6 or 7%, refinancing to a lower rate can be the perfect strategy to save over the life of the payments.

And, as you shop around, keep in mind that in some cases, getting you financing directly from a financial institution instead of the dealer can help ensure you’re getting the most competitive rates. Confirm available rates and options to decrease your monthly expenses and save money overall.

You want to continue to improve your credit score.

If you’re looking into refinancing, you’re already demonstrating a vested interest in improving your overall financial standing. Also, exhibiting behaviors like paying off debt, adjusting your budget and making timely payments has probably contributed to raising your credit score since you first bought your car.

Better credit means better loan terms and the possibility to qualify for lower rates. Reward yourself for your efforts and lower you monthly car payment!

Your lease is going to expire soon.

Leasing a car? Refinancing is an option for you, too!

For those finishing out a car lease and considering next steps, refinancing your loan can help you keep your payments exactly where you want them, and it gives you the freedom to decide whether you’ll purchase your existing car or trade it in for something else.

You want to lower monthly payments.

If your biggest concern is decreasing your monthly payment, a refinance option can help you get there. And who doesn’t want a lower monthly payment?

Keep in mind, this may extend the term of your loan a bit—you can work with your lender to make sure that you’re getting a great, low rated wile keeping more of your income for other things.

So, how will this affect your overall credit?

We’ve shared a number of reasons to consider refinancing your auto loan here, but you may be left with one final question—does refinancing a car hurt your credit?

Short term: It may bring your score down. Long term: You can bring it back up over time.

Refinancing a loan is a lot like applying for a new one—the lender will run a hard check on your credit. That means you’ll see a slight dip in your credit score. Refinancing could also lower the age of your accounts, which would also cause a slight drop.

However, making your monthly payments on time ahs a much larger impact on your overall score than one hard check and a new account will. You can easily mitigate potential damage to your credit score by checking your credit report for any errors before you refinance, holding off on any new loans in the months following your refinancing and paying on time every month.

Still not sure if refinancing your auto loan is really worth it? Contact your Mountain America Credit Union today. Our team has a number of auto refinance tips that can save you time and money.