Is It Time to Refinance Your Car?

Refinancing your auto loan can help lower your interest rate, reduce your monthly payment, or move your loan to a financial institution that better fits your needs. But how do you know if it’s the right time to refinance?

Here are some of the most common reasons borrowers choose to refinance and a few important factors to consider before getting started.

Start with Your Interest Rate

One of the most popular reasons to refinance is to secure a lower interest rate. If interest rates have declined since you originally financed your vehicle, or if your

Over the life of the loan, even a small reduction in your interest rate can result in meaningful savings.

More Than Just a Lower Rate

Refinancing isn’t always just about getting a lower rate. It can also be an opportunity to bring your loan to a financial institution you know and trust.

While dealership financing is often convenient when purchasing a vehicle, many borrowers later appreciate the benefits of working with a local credit union or bank who can provide personalized services, convenient digital banking tools, and a commitment to the communities it serves. Having your accounts in one place can make it easier to manage your finances, monitor spending, and stay on top of payments.

Some borrowers also refinance to adjust their loan term or monthly payment. Depending on your financial goals, refinancing may provide additional flexibility and help you better manage your budget.

Your Credit Score Is Only Part of the Picture

Your credit score is an important factor lenders consider when reviewing a refinance application, but it isn’t the only one. Interest rates available in the market, your payment history, income, and the vehicle itself can all play a role.

A lender can review your situation and help determine whether refinancing may be a good fit.

Understanding Loan-to-Value Ratio

In addition to reviewing your credit profile, lenders will evaluate your vehicle’s value and the amount you currently owe on the loan.

If you owe more than the vehicle is worth, often referred to as being “upside down” on the loan, refinancing may be more challenging. Thankfully, there are still options available depending on your overall financial profile and the lender’s guidelines.

Because vehicles typically depreciate over time, lenders also consider the age and current market value of the vehicle when evaluating a refinance request.

How to Refinance Your Vehicle

The refinancing process is generally straightforward and can often be completed online.

You will generally need:

• Vehicle registration information
• Proof of insurance
• Your current loan payoff amount
• Current vehicle mileage

The lender may also request additional information depending on the loan and vehicle.

Another Option: Loan Repricing

If your goal is simply to obtain a lower interest rate, ask your lender whether loan repricing is available.

With a repricing, the lender reviews your current credit score and may adjust your interest rate without requiring a full refinance. Not all financial institutions offer this option, but it may be worth exploring if your financial situation has improved since you opened the loan.

The Bottom Line

Refinancing can be a smart financial move when it helps you lower your interest rate, reduce your monthly payment, or transfers your loan to a financial institution that provides better service.

A conversation with your credit union or bank can help you determine whether refinancing is the right choice and what options may be available to you.