Being in debt can be a huge drain…on your resources and your energy. Wouldn’t it be great if you could lessen that burden in an all-around good-for-you way?

Well, if your current auto loan is one of the things that’s cramping your joy ride through life, there just may be a promising way forward. Refinancing your vehicle loan could be a way to lower your monthly payments, shorten the duration of your loan, and more.

Keep on trucking through this post for more details.

Is Refinancing a Car Loan the Right Move?

The first thing to determine is whether or not refinancing your car loan is appropriate for your particular situation. You can begin to discern this by understanding why people refinance their loans in the first place.

While certainly not an exhaustive list, here are some common reasons for overhauling you auto lending arrangement:

• You want to lower your costs. One of the primary goals of the refi endeavor is to slash your cash outflows. Refinancing can be a way to reduce interest rates, fees and penalties, monthly installments, and loan length. These can minimize the overall cost of your loan and maybe also your periodic payments.
• You want to pay off your loan more quickly. By rejiggering the terms of your loan via refinancing, you may put yourself in a position to pay down your car debt in less time. This can free up your money for other purposes.
• You want to improve your credit score. You may be able to strengthen or repair your credit standing with a new car loan. How? By facilitating your ability to make regular, timely car payments and by adjusting the mix of debt obligations you’ve taken on.
• You want to extend the life of your loan to drop monthly payments. This could lower monthly payments.
• Your original loan was through the car dealer. Dealerships have a reputation for not offering the best rates or terms.
• You’re not happy with your current loan or lender. This is sort of a catchall. Maybe the lender you’re with doesn’t offer convenient mechanisms (like easy-to-use mobile banking) for paying your monthly bill. Or perhaps the lender is never available to answer questions.

Are any of those scenarios speaking to you? If so, refinancing your auto loan may be a wise action to take.

Ultimately, though, each person’s needs and circumstances at a given time are unique. So you really must evaluate all the variables to figure out what’s smart for you. If you need help sorting it all out, Valley Credit Union is here for you!

Pros & Cons of Refinancing a Car

Aside from having a firm grasp on your “Why,” being fully aware of the positives and negatives of car refinancing is a good idea.

Upsides of Car Loan Refinancing

Going for a new car loan could be a boon for you in several ways, such as:

• A lower interest rate
• Getting some cash back (if your car’s worth more than the balance of your loan)
• Shorter or longer loan period
• Better debt mix or debt-to-income ratio

Possible Cons of Refinancing Your Car Loan

However, renegotiating your car financing isn’t without some potential detractors. These might include:

• Higher total loan cost
• Having to make a cash payment (if your car’s worth less than the amount due on your loan)
• Penalties and fees for revising or early termination of your existing loan or application for a new loan
• Not getting the monthly savings you desired or expected

Doing Your Research

It’s important to have knowledge in your corner when considering auto refinancing. Being savvy about your personal financial situation and about refi loans will ensure you get the best possible outcomes.

To that end here are some tips to help you educate yourself on all things “car loan”:

• Explore your options. Bargain hunting and comparison shopping isn’t just for finding the freshest, cheapest groceries. It’s a must for car loans, too. It’s how you’ll discover the lenders with the best financing options for your needs.
• Don’t forget about fees and penalties. Find out if there are costs — like a prepayment fine — associated with ditching your current loan. You’ll also want to find out the costs associated with any new loans you’re considering.
• Consider other sources of money. Loans are a great tool to have in your belt. But they aren’t the only tool. If you think about it, you may have other wells of money to dip into. The answer for you may include a refinanced car loan, plus funds from elsewhere (e.g., family, credit cards, personal loans), too.
• Be credit wise. Have a solid idea of your credit score and history. Make sure your credit reports are up to date and accurate.The process of applying for a loan will impact your credit, too, so this may influence your timing.

Auto Refinancing & Credit Record

How refinancing your vehicle loan impacts your credit story is contingent on many things — your credit history, how much and the kind of debt you have, the new car loan you’re seeking, etc.

Does refinancing hurt my credit score?

According to Experian, refinancing your auto loan could cause a temporary dip in your credit score. They reiterate, though, that this momentary score sag is far outweighed by the longer-term gains you reap. Ultimately, in their view, if refinancing makes it so that you can pay your loan installments in full and on time — that’s a success.

What range of credit scores is allowed when refinancing a loan?

Surprisingly, there’s no set-in-stone minimum threshold for car refi. Don’t misinterpret this lack of a bottom bracket.

The better your credit score, the better your chances are for getting a better loan. But, if your credit is lackluster, you may still be able to secure an auto refinance loan.

When Should I Refinance My Car?

As with other things in life, timing is often key. When it comes to car refinancing, it’s no different. 

The decision to refinance is oftentimes linked to significant life events. Other times, the move to refi may be tied to developments in your creditworthiness. Take a look at some typical cases:

• Your income’s dropped or your expenses have risen, and you have to right-size your budget accordingly.
• Your income’s increased and you have greater ability to negotiate better lending conditions and tackle your debt.
• Your credit score’s soared since you got your current auto loan.
• You need to finish your loan out on a different schedule.
• You found a new vehicle loan with a better rate and preferable terms.
• Refinancing and paying down your car debt outpaces the negatives of sticking with your existing loan.
• You don’t owe more than your car’s worth.
• Lending rates, often based on the prime rate, have gone down since you took out your loan.

Should I refinance my car before buying a house?

This depends on your situation. As you may expect, there are pros and cons to refinancing your car before or after getting a mortgage.

That said, here’s a very generalized rule of thumb: It may be OK to refinance your car prior to buying a house if you have a healthy credit score and you have a lot of debt relative to your income. Refinancing might lower your DTI ratio, which could be attractive to mortgage lenders. If you go this route, though, it may behoove you to wait a couple of months after getting the new auto loan to go for that mortgage.

How Soon Can I Refinance My Car After Taking Out the Original Auto Loan?

You’ll want to hit the pause button for at least a few months. This allows ample time for back-end activities like title transfers and initial payments to register on your credit history. Several sources recommend waiting 6-12 months — depending upon your credit track record — before scouting out refinancing alternatives.

Where Do I Go to Refinance My Car?

There are countless lenders with myriad loans in the marketplace. Finding the right place to borrow from is a very personal decision, based on your individual profile and preferences.

Can I Refinance My Car with the Same Lender?

Absolutely, this is (in theory) on the table. Just bear in mind that your current lender may not offer a refinancing solution that’s the best fit for your needs now. It’s recommended that you shop around to see what’s available.

Benefits of Refinancing with a Credit Union

In general, working with a credit union can be more advantageous for you. CUs are usually member-centric non-profits, which means they’re motivated to align their products and services with your needs, not shareholders’. Because of this, credit unions may offer benefits and perks that “traditional” financial institutions can’t.

For example, when it comes to car loans here at Valley Credit Union, our members enjoy the following wins:

• Simple, straightforward, low-hassle process
• Easier, quicker application and loan approval decision
• Cheaper financing via lower interest rates and fees
• Favorable terms that provide flexibility and customization
• Plenty of tools, resources, and options to help with planning and payment
• Better service, more support, and a trunkful of guidance

Shifting into High Gear with Vehicle Refinancing from VCU 

You might say that the road to financial success is paved with an auto loan from Valley Credit Union. We’re here — ready and waiting — to help you get to that destination. Our dedicated and talented team is available to support you with a variety of financial products, services, and assistance. Contact us today to learn more!

About the Author

 Katie Clark, Director of Administrative Services

Katie Clark has been at Valley Credit Union since 2011. She serves as the Board Secretary and oversees Human Resources, Marketing and Facilities for the credit union, some even call her the credit union mom. As a CUNA and GoWest HR council member she stays connected with the latest industry happenings. When she’s not in the office she enjoys weekends with family & drinking wine at the Oregon coast.