Need to reduce your spending? Consider refinancing your loans.
Let’s be honest… reducing your monthly expenses isn’t always as easy as it sounds. There are only so many ways to cut back. Sure, you can switch cable providers or phone plans, use coupons, buy only necessities, but those savings are usually minimal. You want to save money… a sum of money you can actually see in your accounts.
One of the easiest ways to reduce your monthly spending is by refinancing your current loans. After all, your largest monthly expenses are usually your loans (home loans, auto loans, credit cards). So why wouldn’t they also be the source of your biggest savings? They are.
Let's look at auto loan refinancing.
What is auto loan refinancing?
Refinancing your auto loan may sound complex, but it’s actually quite the opposite. When you originally purchased your vehicle, you probably financed it with a loan from the dealership or another financial institution. By refinancing your loan, you are simply switching it from your current lender to a new one.
Typically auto loan refinancing is done to save money, but there are actually several reasons you might consider switching your auto loan to the credit union.
Why would you choose to refinance?
The most common reason to refinance your auto loan is to take advantage of better loan rates. If loan rates have decreased since you originally purchased your vehicle, refinancing gives you the option to take advantage of the lower rates and pay less interest on your loan. Or, perhaps your credit score improved, and you qualify for better rates. Both these options can help you save money each month and over the life of your loan.
For example, imagine your auto loan balance is $25,000, and your current rate is 6% APR. With a term of 60 months, lowering your interest rate by just 2% could save you a significant amount of money.
Current Auto Loan
Rate = 6%
APR
Monthly Payment = $483.32
Total Interest Paid = $3,999.20
Refinanced Auto Loan
Rate = 4%
APR
Monthly Payment = $460.41
Total Interest Paid = $2,624.78
By refinancing, you could save $22.91 per month and $1,374.42 in interest over the life of the loan.
Other reasons to consider refinancing your auto loan
include:
• Paying off the loan quicker
• Gaining more immediate financial relief
Both these options focus on the term or length of your loan. By shortening the loan term, you will pay off the loan quicker. Your monthly payments will be higher, but you will be able to significantly cut down on the total interest paid over the life of your loan.
In order to gain more immediate financial relief, you may consider extending the term of your loan. This option helps lower your monthly payments even more, but should only be considered if you’re having financial challenges.
When you extend the length of the loan, you risk the loan amount being more than what the vehicle is worth. This results in negative equity or being “upside-down” on your loan. Most lenders will not allow this situation to happen. However, additional temporary options may be available if you’re experiencing financial hardships.
How refinancing works.
Auto loan refinancing is a simple process. You’ll need to apply and provide your current auto loan paperwork, including the payoff amount, to the credit union. Once reviewed and approved for the auto loan refinance, the credit union will pay off the loan with your current lender.
A new loan will be created at the credit union, which will include your new payment and payment schedule. The entire process takes very little time and could help you save money each month going forward. Most of the refinance process can be handled without ever needing to visit a branch.
We’re here to help.
If you’re ready to put more money back in your pocket each month by refinancing your auto loan, we’re here to help. You can start your application online, stop by any branch location or give us a call at 800-336-6309.
While you're at it, take a look at your mortgage, home equity loan, personal or student loans. We can help with those, too.
This article is for educational purposes only. Please contact
the credit union for guidance on your specific needs.