When To Refinance An Auto Loan
If you're unhappy with your current auto loan, you may be looking for the best time to refinance with a new loan. Refinancing your car loan can help you reduce interest on the initial loan or lower your monthly payment. Refinancing an auto loan can be a wise financial decision, especially if you have many years left on your repayment. It gives you the flexibility to adjust monthly payments and remove or add a cosigner, a person who agrees to pay your loan if you can't. Partnering with a reliable credit union can ease the refinancing process.
Refinancing an auto loan means applying for a new car loan with a new lender to repay the existing loan. The primary objective for refinancing is to get a loan on favorable terms that will allow you to save interest and shorten your term. Some key advantages of refinancing your auto loan include:
Having a clear objective for refinancing can help you maximize the benefits.
You might choose to refinance your auto loan if interest rates have dropped, your credit score has improved, your financial situation has changed, or you find a better loan offer available.
Interest Rates Have Dropped: If the current car loan rates have dropped compared to when you took your initial loan, you may qualify for a better loan term. A slight change in the current market rates can help you refinance at a lower rate, saving you money on interest. Even if your credit score hasn't improved since you took your initial car loan, you can take advantage of the larger market trend to refinance at lower rates.
Improved Credit Score: Even if market rates fail to change significantly, an improved credit score can help you secure a better auto refinancing deal. Lenders offer better loan terms to car owners with strong credit scores. An improved credit score assures lenders you're at a lower risk and can repay the loan in time. It also allows you to get loans at more competitive rates.
Financial Situation has Changed: If you got a new job or a pay increase since you took the original loan, it may be advantageous to refinance. Keeping up with the current monthly auto loan repayment may be challenging when your financial situation changes. When your budget is tight, you can get a more affordable loan that extends your repayment period. However, the extended period may attract more interest rates.
Better Loan Offers Available: If you don't like how your current lender does business, it may be the best time to refinance. Refinancing with credit union lenders could give you a more favorable rate or loan term over other lenders.
Shopping for the best auto loan rate is important, and getting pre-approved at a credit union, like ProFed, before you arrive at the dealership will save you time and money.
Competitive Interest Rates: Oftentimes, credit unions offer more competitive auto loans than other financial institutions. Credit unions are not-for-profit, allowing them to operate in the best interest of their members.
Personalized Services: Credit unions highly invest in the community and strive for a personalized member experience. Their teams strive to see each member succeed by creating loans with reasonable repayment terms and competitive interest rates.
Flexible Terms: Credit unions offer unmatched flexibility in your auto loan repayment. Some credit unions allow members to skip repayment when they face financial hurdles, such as unexpected medical expenses or job loss. You can also discuss repayment terms that fit your financial goals with your credit union.
Local Decision-Making: Most credit unions, like ProFed, perform underwriting, decision-making, and servicing in-house, which makes for a fast and smooth experience for the member trying to apply for an auto loan or refinance.
Understanding the Refinancing Process with a Credit Union
Eligibility Criteria: You'll have to meet the basic requirements to qualify for an auto loan refinancing. These may include:
Application Process: Refinancing your auto loan is similar to getting an initial car loan. A step-by-step application process involves:
Approval and Terms: Lenders have different auto loan refinancing approval requirements and terms. As a borrower, getting approved for auto refinancing may involve filling out a preliminary application for review by the lender. After the review, your lender will let you know the loan amount and interest rate for which you can qualify.
Closing the Loan: Once you've finished negotiating an auto refinancing loan, you must review all loan agreements before closing the deal. The federal Truth in Lending Act (TILA) mandates lenders to provide written documents with all important details of the loan. The documents must include:
After securing the refinancing loan, the next step is to close the original auto loan. To fully repay your initial auto loan, you must consider the following aspects:
After closing the loan, it is important to update these documents with the new auto loan. This step ensures that your financial records are accurate and up to date and reflect your current financial situation.
Determining when to refinance an auto loan is specific based on each borrower’s situation. Refinancing an auto loan may have several benefits, such as lower interest rates, extended or shortened loan periods, and lower monthly payments. More so, refinancing a car loan with a credit union gives you access to competitive interest rates, personalized services, faster decision-making, and flexible loan terms.
If you’re considering refinancing your auto loan, reach out to ProFed so we can help explore your options. Schedule an appointment today!