A new season brings the opportunity to refresh your lifestyle. Whether you’re decluttering your home or spending more time outdoors, spring provides a great opportunity to focus on your finances.

For example, if your car payment has been eating up more of your monthly budget than you’d like, it may be time to reevaluate. Many buyers lock in higher rates when they purchase their car and may not ever take a second look at what can be adjusted through the life of the loan.

Spending minimal time to investigate ways to reduce your car payment could help you potentially free up money for other things that bring you joy. This article walks through important questions to consider.

What does it mean to refinance a car loan?

Refinancing a car loan simply means replacing your current auto loan with a new one that has better terms or rates.

An auto loan refinance may help you:

• Lower your interest rate
• Reduce your monthly payment
• Adjust your loan term
• Better align your payment with your current financial goals

In many cases, people refinance because they originally financed through a dealership or another lender at a higher rate. 

How can refinancing lower your car payment?

There are two main ways refinancing can help lower your monthly payment, either by securing a lower interest rate or extending your loan term.

If your current loan has a high rate, refinancing to a lower rate can significantly reduce your monthly payment over time. 

For example, lowering your rate from 10% to 4.99% on a $30,000 loan could reduce your monthly payment by $70 or more. Our financial counselors have been able to consistently help members save well over $70 per month using this tactic alone.¹

Check for rates starting as low as 4.99%² on both new and used cars to take advantage of the best reductions.

Another option is to extend the length of your loan, spreading payments out over a longer period.

This can lower your monthly payment, though it may increase the total interest paid over the life of the loan. For many individuals, the trade-off can still be appealing if it improves monthly cash flow and they plan on keeping the vehicle for several years. To give added flexibility, make sure you find a lender like Credit Union of Ohio that doesn’t have pre-payment penalties in case you decide to pay the loan off early.

When does refinancing really make sense?

These are the top reasons when refinancing makes sense:

• Your current interest rate is higher than what’s available today
• Your monthly payment feels too high
• Your credit has improved since you originally financed
• You plan to keep your vehicle for a while

Even a small reduction in your rate or a slight adjustment in the length of the loan can often make a noticeable difference in your monthly payment.

How easy is it to refinance a car loan?

Most people assume refinancing is complicated, but the process is often quicker and simpler than expected. For example, at Credit Union of Ohio you can apply online in minutes and get a quick decision. All the loan details can typically be taken care of virtually as well. 

You can even estimate your potential savings ahead of time by using a payment calculator to see what your new monthly payment could look like.

If you’re ready to take the next step to a lower payment or explore rates, get started here. 

PEOPLE ALSO ASK

• How long does it take to refinance a car loan?
  

  In many cases, the process can be completed quickly. Applying online and having all your documents ready can help speed things up.

• Is it better to refinance or trade in my car?
  

  It depends on your goals. If you like your current vehicle but want a lower payment, refinancing is a smart option. If you’re ready for a different vehicle, trading in and getting preapproved for a new loan could be the better route.

• When is the best time to refinance a car loan?
  

  The best time to refinance is when interest rates are lower than your current rate, your credit has improved, or your financial goals have changed. Many borrowers also choose to refinance if they initially financed through a dealership at a higher rate.

• How much can I save by refinancing my car loan?
  

  The amount you can save depends on your current rate, loan balance, and new loan terms. Average savings can vary anywhere from $25 to over $150 per month. A loan expert can help you figure out your exact savings.

• Does refinancing a car loan hurt your credit?
  

  Refinancing may cause a small, temporary dip in your credit score due to a hard inquiry. However, if refinancing helps you make more consistent, on-time payments, it can have a positive impact on your credit over time.

• Can I lower my car payment without refinancing?
  

  Your minimum payment is unlikely to be changed without refinancing the loan. By refinancing, you could secure a lower rate or extend the term to reduce your monthly payments.

Have other questions? We have answers! At Credit Union of Ohio, we aim to be your trusted financial partner in providing access to the tools, guidance, and support you need to succeed. From free financial counseling and financial education to low-interest lending options and unique savings products, we’re here to help you build your best life. Call 800.443.5698 or stop by your local branch to get personalized help today.

 

1 - Your experience may vary from the story presented.
2 - 5.25% APR based on a $30,000 loan at the maximum term with a $225 processing fee.