When Should You Refinance Your Car?

7/31/2020

If you are unhappy with your auto loan, you may consider refinancing your car. You may be able to get a lower payment or interest rate by refinancing your loan. Whether you’re looking for better interest rates, a lower payment, or you’re afraid that you may default on your car loan, auto refinance may be a solution for you. 

If you’re looking to refinance your car loan, Arkansas Federal Credit Union can make it easy and simple. We have put together a list of things to consider before refinancing your vehicle to help you make a decision if refinancing is the right decision for you right now. 

How Does Refinancing Your Car Work?

If you’re looking to refinance your loan, the refinancing requirements may play a key role in making your decision. Every bank or credit union does auto refinance differently and may have specific refinance requirements.

First you want to research the credit union or bank you plan on going through for refinancing. If you apply and qualify for an auto refinance loan, your loan lender will often directly pay off your existing loan. Once your lender has bought your loan, you will be under contract of the new auto refinance loan.

If you have any questions or think that you may qualify for auto refinance with Arkansas Federal, we offer free auto refinancing applications and can help you understand our refinancing offers and how they may be able to benefit you. We would be happy to discuss the loan terms and how it compares to your existing loan and monthly payments. 

Consider the Following Before Refinancing Your Auto Loan

There are times when refinancing your loan may be a better option than your current auto loan. If you are looking to refinance your car, some banks and credit unions may give better options than others. Here are some things to consider:

  • Lower Interest Rate: If you are struggling paying a higher interest rate with your current loan, you may consider using auto refinance as a way to lower the interest rate, saving you money on your monthly payments and the total cost of your loan. If the bank or credit union you’re looking at has interest rates that are the same or are higher than the one you currently have, you may not want to refinance with them.
  • Credit Score: If your credit score has improved, applying for an auto refinance loan may benefit you by giving you access to better rates. If you have had high interest rates on your loan amounts, it could have been due to a low credit score. If your credit history has improved, you may qualify for a refinance loan with a lower interest rate.
  • Lower Payments: One of the biggest benefits of refinancing your auto loan is that you may be able to reduce your monthly payments. If you find that your current auto payment is higher than you would like, a refinanced loan might lower your payments and bring down your monthly costs.

If you are looking for lower monthly payments and lower interest rates, auto refinancing could benefit your finances in the long run. Speaking with one of our loan officers can help you better understand your options and how refinancing may be able to help you to reduce your payments or total loan cost.

When Shouldn’t You Refinance a Car Loan?

Although refinancing your car has many benefits, there may be times when refinancing is not the best option for you or your family. For example, if you owe more on your loan than the value of the vehicle, refinancing may not be the best option. You may run into owing more money in the long run because your current lender will require that you pay off the rest of the loan before you are able to refinance your loan.

Additionally, if you plan on paying off the loan amount soon or your loan is almost paid in full, refinancing may not make sense. If you are able to afford the current loan payments, then refinancing may not be much help. Since refinancing typically provides lower interest rates and payments, they are typically meant for people who still have multiple years of loan payments left instead of less than a year of payments. 

Refinancing Through Credit Unions

If you’re familiar with car loan refinancing, you may also know that many car dealerships offer some form of car refinancing. However, there may be things that credit unions can offer that dealerships can’t. Because credit unions offer memberships to their clients, they may have unique loan offers and deals that you can’t get from a dealership or a commercial bank.

At Arkansas Federal, we help our members by offering auto refinancing options that may not be available at other lenders or dealerships. To find out about our current rates and auto refinancing offers, contact your local branch to speak with a loan officer. Any resident of Arkansas can become a member of Arkansas Federal Credit Union so call today to learn about your options.