No one wants to pay more than they need to toward their monthly bills. Yet, auto loan debt is higher than ever. The less money you spend on your monthly car payments, the more you’ll have left for everything else. So how can you reduce your losses?
One great way to lower your auto loan payments is to refinance your auto loan with a credit union.
What is the difference between a credit union and a bank?
What are the benefits of refinancing your auto loan with a credit union
Credit unions are financial institutions which offer similar services to the ones that banks provide. For example, at a credit union, you can open up a checking, investment, or savings account, or take out a loan.
But unlike a bank, credit unions are non-profit organizations owned by their members. As a result, they often offer better customer service, lower interest rates on loans, and higher interest rates on deposits.
3 benefits of refinancing your auto loan with a credit union
When it comes to refinancing an auto loan, a credit union will likely offer you a lower interest rate. Below you can see a comparison between the national average interest rates on auto loans from credit unions and banks.
What are the average rates for credit unions and banks?
|Product||All CUs (National Average Rate)||All Banks (National Average Rate)|
|Used car loan, 48 months||5.43||5.43|
|Used car loan, 36 months||3.51||5.37|
Receive better customer service
A credit union may also improve your loan experience. Because they are not-for-profit, credit unions serve the interests of their members, not their shareholders. As such, they prioritize low costs and great service over profits and fees. At a credit union, you’ll usually find more customer-friendly policies, personalized help, and fewer fees.
Enjoy more features
Lastly, credit unions often offer more helpful features than banks or other lenders. For example, First Credit Union offers auto insurance and debt cancellation. DC Credit Union also offers debt protection, as well as GAP insurance coverage.
Debt protection and cancellation programs allow you to cancel or reduce your loan balance or payments during difficult times, like family medical leave, involuntary unemployment, death, and disability.
Should everyone refinance their auto loan with a credit union?
Not necessarily. While credit unions often offer competitive interest rates, they will not always beat every other bank or lender. It’s best to shop around and compare quotes from at least three lenders.
A study entitled “Real Effects of Search Frictions in Consumer Credit Markets” revealed that a substantial price dispersion exists in the retail auto lending market. That’s a long-winded way of saying there is a wide range of auto loan rates. Further, it found that 60% of borrowers don’t get the lowest available interest rate because they don’t shop around.
In conclusion, anyone who is considering refinancing their auto loan should get a quote from a credit union. However, they should also compare that quote to a few others which aren’t necessarily from credit unions. You may be surprised at the rates banks and nonbank direct lenders have to offer.
Frequently asked questions about refinancing an auto loan
How soon can you refinance a car loan after purchase?
In most cases, you can apply to refinance your car loan immediately after purchase.
How can I refinance a car loan with bad credit?
If you have bad credit, you still may be able to get approved to refinance your auto loan. However, you may not qualify for a better interest rate than your current one. If your credit score is low, consider finding someone with better credit than you to cosign for the loan. This can help you qualify for a better rate, as they will be jointly responsible for the loan.
Does refinancing a car hurt your credit?
In the short term, your credit score will likely take a little dip when you refinance your auto loan. When you apply for any loan, a hard inquiry appears on your credit report, causing your score to drop a few points. However, in the long run, it can help you build your credit. Just be sure to make your payments on time.
What happens when you refinance a car?
When you refinance a car, you get a new loan and use it to pay off the outstanding balance on your existing auto loan. The old loan is paid-in-full and closed, and you make payments to the new lender until the account is paid off.
Do you get a new title when you refinance car?
Typically, when you refinance a car, your original lender transfers the title to your new lender. As such, a new title is not needed.
What refinancing mistakes should I avoid?
While refinancing can be beneficial, here are some common mistakes to avoid.
- Don’t stretch out the loan term unless you’re really struggling with your monthly payments and can’t secure a lower interest rate. Extending the term will usually cause you to pay more in interest overall. Prioritize lowering your interest rate, which will help you save both in the short and long term.
- Keep an eye out for prepayment penalties. Check to see if your current lender will charge you if you pay off the loan early. These penalties could negate any savings you would otherwise get.
- Avoid missing payments. Before you stop paying for your original loan, confirm with both lenders that the loan has been paid in full. Otherwise, missing payments could damage your credit.
By avoiding these big mistakes, you can improve your chances of a beneficial refinance process.
Refinance your auto loan and find your best rate
Ready to find your best rate and start saving on your auto loan? Save time researching what credit unions, direct lenders, and banks will offer you using SuperMoney’s auto loan engine. You can receive multiple offers in minutes and compare them side-by-side.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.