Is it Time to Refinance Your Auto Loan?
June 19, 2020
Refinancing can seem like a foreign language to you until you do a little research to learn what it means, when to do it and how you can benefit from it. Have no fear, we’ve done the leg work for you!
Not sure? These circumstances can make a refinance a good idea:
Your credit score improves.
If you’ve consistently been on time with your loan payments, your credit score has likely improved. Refinancing when you have a better score can drastically cut your interest rate.
You didn’t shop around initially.
If you’ve never shopped around for a car loan, now’s a great time. Using the car dealerships lender can mean being stuck with a rate that’s higher than what you’d get at Greater Iowa Credit Union.
Your financial situation changes.
If your finances have improved, you can shorten the life of your loan by paying more each month. On the flip side, if money is tight right now, consider refinancing to a longer-term loan with a lower monthly payment.
How can you benefit?
Lower interest rate.
One of the most impactful outcomes of refinancing a loan is a lower interest rate. Whether your credit score has improved since you originally took out the loan or simply because average rates have dropped, if a significantly lower rate is possible, it’s worth looking into. A lower interest rate can make a big difference in how much you pay over the life of your loan.
Lower monthly payment.
If your current monthly payment is hard to make, you might be able to lower it through refinancing. Most often, this is done through the combination of a long (or longer) term on a lower total loan amount.
That being said, it’s important to take interest into account. If you were already a few years into your auto loan and decided to refinance for the same term, you’re now paying interest for more years than you originally intended. That means that while your monthly payments may be smaller, it’s possible that you’ll pay more overall than you would have without refinancing.
You could refinance to shorten the term of your loan. If refinancing won’t significantly change your interest rate, it may be just as effective to simply make larger monthly payments on your own.
Refinancing is a fairly simple idea that can be complicated in action. Carefully consider whether the drawbacks and benefits of refinancing will come out in your favor. Be aware that there can be costs associated with refinancing a loan since you’re essentially taking out an entirely new loan and can be charged various fees.
Ready to pull the trigger? Let GICU help!
Call, stop in or visit our Auto Loan Center to learn more about how GICU can help drive down your monthly payments with low rates and cash back!
Still unsure? Let’s recap.
Refinancing an auto loan is essentially getting a new loan with new terms. Refinancing to a shorter term will likely save you money, since you won't be paying interest for as long. It's also likely that you'll get a lower interest rate. Enter the terms of your current loan and the terms of a potential refinanced loan to compare the overall costs.
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