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Is it a Good Idea to Refinance Your Car Loan?

From lowering the interest rate to shortening the term, people refinance their car loans for a variety of reasons, especially if their situation has changed. Plus, in many cases, people save more money in the long run after refinancing and end up with a better monthly payment. However, many other factors play a part in determining if it’s a good idea to refinance your car loan. To answer this, it’s important to be clear about your goals—and then you can weigh the pros, cons, and timing of a refinance loan to decide if it’s right for you and your current financial situation.

If you already know that you want to refinance your car and would like to take advantage of SCCU’s low refinance rates, then you can apply quickly and easily online

Refinancing Auto Loans: An Overview

If you currently have an auto loan and would like to replace it with one that has better terms or a lower interest rate—that’s what it means to refinance an auto loan. Refinancing involves applying for a new loan, and if accepted, closing the old loan. It’s typically a quicker process than starting from scratch. You can refinance with the lender that holds your current loan or with a different one.

Before we get to the potential benefits, here’s a more detailed explanation of what it means to refinance your auto loan

Benefits of Refinancing

Some of the most common reasons that people refinance auto loans include:
  • Lowering the interest rate and/or the monthly payment
  • Getting cash
  • Buying a leased car
  • Switching lenders
  Find out the best time to refinance makes sense for you here.

#1: Refinancing an Auto Loan Lowers Your Interest Rate

Usually, people want to refinance car loans when interest rates have dropped—or, because they’ve improved their credit scores, and therefore, can now get a lower interest rate. Any time that you reduce the interest rate you’re paying and don’t extend the repayment period, you tend to save money over the life of the loan. Plus, the payment may go down (depending on the term of the new loan).

Let’s say that a car loan was originally taken out under the following scenario:
  • Price: $35,000
  • Down payment in cash: $0
  • Trade-in value of old car: $5,000
  • Loan amount: $30,000
  • Term: 60 months
  • Rate: 5.00%
  • Monthly payment: $566
  • Total paid over the life of the loan: $33,968

A year later, the balance is $24,583 and the person decides to seek a better interest rate and payment. They find a loan program with a 48 month term and an interest rate of 3.25%. Notice how, by refinancing from the original loan program to this one, they aren’t extending their term, instead matching what was remaining on their current loan.
  • Loan amount: $24,583
  • Term: 48 months
  • Rate: 3.25%
  • Monthly payment: $547 ($19 lower than the one above)
  • Total paid over the life of the loan (+$5,417 you paid in the first year from your previous loan): $31,666
  • Total savings over the life of the loan ($33,968-$31,666): $2,302

If the lender’s fees to refinance your car loan is less than this amount (or there are no fees, like at SCCU), then it may make sense to refinance. 

If you wanted to reduce the amount of interest paid back over the life of the loan, here’s what the scenario would look like if the vehicle was refinanced for 36 months. The payment would be $718. That may be more than what a monthly budget could contain. If it’s doable, though, here’s a comparison of what would be paid back under these two refinancing scenarios:
  • Loan amount: $24,583
  • Term: 36 months
  • Rate: 3.25%
  • Monthly payment: $718
  • Total paid over the life of the loan: $25,848 ($408 less than the 48 month term)
  • Total savings over the life of the loan: $1,320 (compared to original 60 month loan)

These examples aren’t designed to suggest that you should be able to afford car payments of more than $700. It’s to demonstrate how it can make sense to weigh what impact car loan refinancing may have on your monthly budget as well as the amount paid back over the loan’s life—with the goal being to find the sweet spot that fits your own financial situation. If a certain interest and term provides worthwhile benefits, then this may be the right time for you to refinance.

Auto Loan Refinance Interest Rates

Effective Date: June 01, 2023
Apply Now
Payment Period Refinance APR* "As Low As" Minimum Loan Amount Payment per $1,000
Up to 36 Months 5.49% No minimum loan amount $30.19
Up to 48 Months 5.74% No minimum loan amount $23.37
Up to 60 Months 5.99% $10,000 $19.33
Up to 66 Months 6.24% $10,000 $17.94
Up to 72 Months 6.49% $12,000 $16.81
Up to 75 Months 6.74% $15,000 $16.38
Up to 78 Months 7.24% $20,000 $16.11
Up to 84 Months 7.49% $25,000 $15.33
Rates shown are fixed Annual Percentage Rates for vehicle model years 2023 and newer. Rates are subject to change. Your actual rate and terms are affected by your creditworthiness, term selected, vehicle type, and model year. Rates only apply to refinances of non-SCCU auto loans. You may be asked to furnish a down payment. Florida loans are subject to Documentary Stamp Tax. The tax amount is not included in the quoted APR. Certain restrictions apply. 

See what your new auto payment could be with a lower rate at SCCU! 

#2: You Can Get Cash From a Refinanced Auto Loan

If you need cash—perhaps to put towards wedding expenses, college tuition, or to fund a vacation—and your vehicle has equity, then refinancing can be an avenue to explore. Here’s an example:
  • Value of your vehicle: $25,000
  • Current loan balance: $15,000
  • Loan to value (LTV) allowed by your lender: 80%

To find out if it makes sense to apply for a refinance, calculate the amount your lender will lend, based on their LTV allowance ($25,000 x 80% = $20,000). The amount of $20,000 would first be used to pay off the current loan with the rest available for your other uses ($20,000-$15,000 = $5,000). If the amount that you would receive helps solve your needs for cash, then it usually makes sense to refinance. Keep in mind that you’re going to increase the overall number of payments on an auto loan and pay more interest in the end. However, this might be better than using a credit card or taking out a personal loan. Check to see what rate and fees a lender charges to verify that it’s a good route to take.

#3: Refinancing to Buy a Leased Car

Some people lease a car rather than buying one. At the end of the lease term (typically 24-48 months), most agreements allow the lessee (person leasing the vehicle) to buy the vehicle instead of turning it in. Because leasing is considered the initial financing of the vehicle, people who buy their leased vehicles are actually refinancing. 

The lease agreement will list a residual value, which is the estimated value of the vehicle at lease end—and also the amount that would need to be refinanced. In general, refinancing a leased car follows the same process as refinancing a car loan although the title would be transferred into your name, and, until the loan is paid off, include the name of the financial institution. 

#4: Switching Auto Loan Lenders

Sometimes, people refinance auto loans because they aren’t satisfied with their current lender, or it's no longer convenient to have them as their financial institution. In that case, refinancing car loans from the previous bank or credit union to the new one accomplishes that goal.

Issues to Consider When Refinancing an Auto Loan

Issues that can make refinancing more challenging include:
  • If someone has credit problems, lenders may decline to refinance or charge a higher interest rate. 
  • If the current lender charges a prepayment penalty, make sure to factor that in when deciding if it’s a good idea to refinance. The fee may make it less beneficial.
  • If the loan is “upside down,” meaning the current loan balance is greater than the vehicle’s value, this can make it more difficult to refinance. 
  • If you recently bought the vehicle and didn't make a large down payment, there may not be enough equity yet to refinance.

Remember, any time you put up a vehicle as collateral for a loan, it can be repossessed if payments aren’t made. This is especially important to consider if you’re refinancing to get cash on a vehicle that currently has no loan. 

Comparing Lenders and Their Loan Programs

When shopping for refinance auto loans, borrowers should get information about the interest rates and terms that lenders would change. Also, compare annual percentage rates (APRs). This is a metric that allows you to make more exact comparisons among lenders because it factors in both the interest rate and the fees charged by a particular financial institution. 

The APR represents the true cost of borrowing. If there is a significant gap between the interest rate and APR of a specific loan, this indicates that fees are higher. Note: the APR also factors in interest that accumulates before the first payment is due.

Look at the fees charged by each lender and check to see if they charge a prepayment penalty. 

Benefits of Refinancing Cars at a Credit Union

Credit unions are a special type of financial institution that are not-for-profit financial cooperatives created for and owned by its members (not by stockholders). This typically means that interest rates and fees are lower than loan programs at banks. Because the goal of a credit union is to enhance the financial wellness of members, lower loan rates and fees usually accompany higher rates on savings accounts and certificates of deposit.  

Additional benefits of joining a credit union include:
  • You can may have a better chance of getting your loan application approved because credit unions take a more holistic approach with requirements and aim to work with members. 
  • You receive more personalized service. 
  • You can typically obtain financial education that’s designed to help you meet goals.
  • You’re part of a community, either in a geo-targeted way or because of a professional niche.

Refinance Car Loans at SCCU

Mission Statement: To Create Value in Cooperative Ownership
To put our mission statement into practice, we return profits to our members through better interest rates and lower fees, exceptional member service, and enhanced services. 

Founded in 1951 as Patrick Air Force Base Credit Union, SCCU began with 28 members and $372 in assets. Today, we’re Florida’s third largest credit union with more than 500,000 members, and more than 60+ branches.

Benefits of choosing SCCU to refinance your car:
  • Low rates8
  • Flexible terms up to 84 months9
  • No application fees
  • No prepayment penalties
  • Fast approval decisions
  • Simple electronic closing
  • Automatic online bill pay
  • Excellent member service
  • Free online and mobile banking
Plus, it’s possible that you won’t have to make a payment for up to 90 days11

Any questions? Feel free to get in touch with us, and a Team Member will be happy to assist you. 
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APR = Annual Percentage Rate
¹CALCULATOR: The information provided by these calculators is intended for illustrative purposes only and is not intended to purport actual user-defined parameters. The default figures shown are hypothetical and may not be applicable to your individual situation. Be sure to consult a financial professional prior to relying on the results.
²TERMS: Terms available up to 84 months for auto loan purchases and auto loan refinances, up to 240 months for boat and RV loan purchases, and up to 72 months for motorcycle loan purchases and are based on your credit quality, vehicle type, model, and year. Our usual credit criteria apply. Your term may be different. Qualified borrowers only.
³RATES: Rates are subject to change. Rates shown are fixed Annual Percentage Rates and are affected by your credit quality, model year, term selected, loan-to-value (LTV), and payment method. Your rate may be different. Qualified borrowers only. Our usual credit criteria apply. You may be asked to furnish a down payment. Rates shown for auto purchases/auto refinances are fixed Annual Percentage Rates for vehicle model years 2023 and newer. Rates shown for motorcycle purchases are fixed Annual Percentage Rates for vehicle model years 2020-2024. Florida loans are subject to Documentary Stamp Tax. The tax amount is not included in the quoted APR.