When to refinance your auto loan
An improved credit score since your original auto financing may lead to more favorable loan terms, such as a lower interest rate and lower monthly payment.
- Military Life
In simple terms, refinancing means replacing your current loan with a new one – ideally one with better terms. Refinancing doesn’t reduce the amount of debt that you owe, but it can potentially benefit you by lowering your interest rate or monthly payments or changing other loan terms. So how do you know when the right time is to refinance your auto loan?
“Ask yourself does this make sense and how will I benefit from refinancing my loan” said Joe Pendergast, Vice President of Consumer Lending at Navy Federal Credit Union. “If there are clear benefits, refinancing may be worth it. Take time to understand the terms of your existing loan, then research rates in the market to find out where you might get a better deal.”
An improved credit score since your original auto financing may lead to more favorable loan terms, such as a lower interest rate and lower monthly payment. Even if your credit hasn’t improved, it’s possible to refinance and extend the term for a lower monthly payment. If you’re struggling to pay your current monthly car payment, refinancing may also help set you back on track. For example, on average, Navy Federal members save more than $700 a year when they refinance their auto loan with Navy Federal.
“The caveat is while you may get a lower monthly payment by extending the term, you could end up paying more interest in the long run. Try not to wipe out the savings gained by extending the new loan term too much beyond the remaining term on your existing loan,” said Pendergast.
Here’s a handy online calculator from Navy Federal to help you figure out how much money you could save with a lower interest rate or monthly payment.
It can also be helpful to take into consideration that your original loan may come with early payment fees, meaning you pay a penalty if your loan is paid off before the agreement ends. The new lender may also charge an application fee, though lenders like Navy Federal don’t charge an application fee or prepayment penalty. Still, it’s wise to fully understand your current loan terms before choosing to refinance.
Now that you’ve got the basics handled, let’s talk about what it takes to complete the refinancing process.
Refinancing is as simple as applying for a new purchase auto loan. Gather the same type of basic information about yourself and proof of income, as well as details about your vehicle and current auto loan. Navy Federal makes it easy for members to apply via phone 24/7, online at navyfederal.org, through their mobile app, or by visiting a branch. And if you’re approved, they’ll help you pay off your existing loan and transfer your car’s title. As an added bonus, you could get $200 cash back.
Refinancing your auto loan under the right circumstances is key. Knowing when to refinance is just as important as knowing how. Weighing all the pros and cons, and getting an estimate beforehand, can help you make a solid decision that will ultimately benefit you and your finances the most.
Navy Federal Credit Union is federally insured by the NCUA.
This article is sponsored by Navy Federal Credit Union.