Auto Loan Refinancing

Auto loan refinancing is the process of replacing an existing auto loan with a new one from the same or a different lender. The goal of refinancing an auto loan is to get more favorable terms, such as a lower interest rate or better loan conditions, which can reduce your monthly payments or offer overall cost savings. If you’re looking for ways to save, you might check to see if current interest rates are lower than they were when you purchased the vehicle. 

Using auto refinance loans can be a savvy move, especially when auto loan refinance rates have decreased since you got the original loan or if your credit score has improved. However, it’s essential to carefully consider the potential benefits and costs associated with refinancing and choose a lender that offers terms that align with your financial goals. 

You can refinance an auto loan at banks or credit unions. Credit unions often provide a more personalized experience and typically offer lower fees and interest rates due to their non-profit structure, potentially saving you even more money in the long run.

While both banks and credit unions have their advantages, credit unions offer a member-focused approach and higher potential cost savings. Many, including California Credit Union, aim to improve their members’ financial literacy by offering financial counseling and other resources to help them improve their finances. However, it’s essential to compare offers from different financial institutions to find the best deal.

Refinancing an auto loan can be a smart financial move for various reasons, such as: 

• Lower interest rates: One of the main benefits of refinancing an auto loan is the potential to secure a lower interest rate than what you initially obtained when buying a new or used car. If your credit score has improved or interest rates have decreased since you first took out the loan, you may qualify for a better rate. A lower interest rate on your auto loan reduces your monthly payments and leads to long-term savings by decreasing the amount of interest paid over the life of the loan. 
• New loan terms: Refinancing can allow you to change your loan terms to better align with your financial goals. If you’re looking to lower your monthly payments, you can extend the loan term, spreading the balance over a more extended period. On the other hand, if you want to pay off your loan faster and save on interest, you can choose a shorter loan term. 
• New lender: Switching to a new lender by refinancing your auto loan can offer advantages like improved customer service, better online account management, or more favorable loan terms. Different lenders may have unique perks, and exploring options can help you find a lender that’s more in line with your preferences and financial goals. 

While an auto loan refinance can be beneficial in various situations, there are circumstances where it might not be the best choice. Here are situations when you shouldn’t refinance your car loan: 

• You’re almost finished paying off your current auto loan: If you’re close to paying off your existing car loan, the potential benefits of refinancing may be limited. Refinancing typically involves fees and extensive paperwork, and if you’re close to settling your current loan, these costs may outweigh the potential savings. 
• Your car is more than 10 years old: Many lenders have restrictions on refinancing older vehicles. If your car falls into this category, finding a lender willing to refinance the loan might be challenging. Older vehicles have higher maintenance costs and depreciate faster, making them less appealing to lenders for refinancing. 
• You’re not financially ready: Refinancing involves various considerations, including your credit score, financial stability, and the overall cost-effectiveness of the process. Refinancing may not benefit you if your financial situation isn’t currently stable or if your credit score hasn’t improved since you received your initial loan. Instead, you might consider creating a budget to improve your financial situation to get you to a place where a refinance makes sense. 

Refinancing an auto loan can impact your credit because it involves a hard inquiry on your credit report. When you apply for refinancing, the potential lender will conduct a review of your credit history to assess your creditworthiness. This results in a hard inquiry, which is a record that’s added to your credit report.

The initial impact of a hard inquiry is usually a minor and temporary decrease in your credit score, typically by only a few points. However, as time passes, the impact lessens. Additionally, if you manage your refinanced auto loan responsibly by making on-time payments, you can typically strengthen your credit score and build good credit over time.

How quickly you can refinance your car loan after purchasing your vehicle depends on when the title is transferred into your name and the lender’s restrictions. Typically, it takes between 60 to 90 days after the initial purchase of the vehicle for the title to be transferred. Once that happens, it’s officially in your name, and you can refinance your car with many lenders. 

However, your ability to refinance depends on the lender. Some lenders may require you to wait a certain period before considering your application. This waiting period can vary, with some lenders setting a minimum of six months post-purchase as a requirement for an auto loan refinance. If you recently purchased your vehicle from a dealership and received incentives as part of the purchase, you may also want to check with the dealership on how soon you can refinance.

When applying for an auto loan at a credit union, you’ll need to provide comprehensive information to help the credit union evaluate your application and offer you the best possible terms. This information helps establish your creditworthiness and ensures a smooth application process.

• Personal information: You’ll need to provide your full legal name, date of birth (DOB), Social Security number (SSN) and a valid government-issued photo ID. Current and previous addresses and contact information may also be required.
• Employment and income information: The credit union will need details about your current employer, including how long you’ve worked there and your monthly income. Recent pay stubs or W-2 forms may be requested to verify this information.
• Vehicle information: If you are refinancing your car, you’ll need to provide the year, make, model, mileage and Vehicle ID Number for the vehicle. If you are still shopping and don’t have this information, you can apply to get approved without it.
• Loan information: This includes the amount you wish to borrow, your preferred loan term and information about your down payment. You’ll also need to provide details about any trade-in vehicle, if applicable.
• Membership information: Since credit unions are member-based organizations, you’ll need to provide information to establish or verify your membership eligibility. This may include proof of residence, employment or other qualifying factors.