You’ve probably heard of refinancing your mortgage, but did you know you can also refinance your auto loan?
This option could be a good one for people trying to reduce costs during the coronavirus pandemic.
Here’s What You Need to Know About Refinancing Your Auto Loan
A recent TransUnion study of 1.5 million refi transactions found the average consumer reduced their interest rate by 2.4% after refinancing. That represented an average savings of $52 a month.
“Interest rates that credit unions are charging on car loans generally for people with good credit are phenomenal,” money expert Clark Howard says. “A lot of credit unions are writing car loans right now at around two to three percent.”
If you’re facing a cash crunch and struggling to make your monthly payment, refinancing your auto loan to get a lower payment could mean the difference between keeping your vehicle and having it repossessed.
But before you consider doing an auto refinance, make sure you meet a couple basic criteria:
- Be sure you’re up to date on your car payments
- Be sure you don’t owe more on the car than what it’s worth
You can determine your vehicle’s value at a site like Kelley Blue Book, where you can search by the year, make and model.
Meanwhile, if you do owe more on a vehicle than what’s it worth, it may not prevent you entirely from doing a refinance — but you may have to bring money to the closing table.
Of course, that could be a non-starter if you’re already struggling financially.
Where Should You Look for a Refi?
Clark is a big fan of credit unions for doing auto loan refinances — or for any kind of auto financing, really. He notes that some 80% of people get their loans at the car dealer, but they’d often do better by securing financing at a credit union.
Don’t worry if you didn’t get your initial financing through a credit union. You get a do-over when it comes time for a refinance.
“You may save a huge amount of money per month if you refi out of that car dealer-issued car loan and go into a new one at your credit union,” Clark says.
If you’re not already a member, you can locate your nearest credit union at ASmarterChoice.org.
There’s usually no fee to apply for an auto loan refinance, but you may have to pay title and state fees to complete one.