Refinancing Your Car Loan: Should You?

May 29, 2020

You’ve heard of people refinancing their mortgages when interest rates drop. But did you know that car loans can be refinanced too? If you’re one of the many people looking for ways to trim costs these days, now could be a good time to refinance your car loan.

What Does it Mean to Refinance Your Car Loan?

Often when people purchase a car, instead of handing over a lump sum, they take out a loan to pay for the car and pay back the loan in installments over time.

The purchaser pays a certain amount each month for a pre-determined number of months known as the loan term. The monthly installments include interest based on the APR (annual percentage rate) granted at the time of the purchase. Refinancing simply means getting a new loan for the remainder of what is owed on the original loan.

So, Why Refinance?

Pay less but drive the same car.

By and large, the main reason to refinance is to save money. If the current APR is lower than your old APR, you can lower your monthly payments for the same loan term.

Remove a co-signer.

If your credit is better now than it was when you first purchased the car, and you no longer need a co-signer, you can take out a new loan in name only.

Pay off the loan sooner.

You can keep the same installment amount, but decrease the loan’s term length.

cute golden retriever dog sitting in car trunk with luggage for trip

Tips to Keep in Mind

  • You don’t have to refinance with the same financial institution.
    No matter whom you currently pay installments to each month, another credit union or bank may be able to do the refinancing. (Check out The Summit.)
  • Remember to ask about refinance fees. Sometimes, these fees can make a new loan not such a good deal.
  • Be careful of extending the term of your car loan.Do the math. You may end up paying more over the term of the loan, and it could be far more than the car is worth.
  • Speak to a financial professional.Someone you can trust will give you advice that’s in your best interest.

Thinking about refinancing? Contact our Member Service Center at (585) 453-7000 or (800) 836-SFCU.)

All loans are subject to credit approval. Must be 18 years of age or older to apply. The Summit’s loan programs, rates, terms and conditions are subject to change without notice.100% financing available on car loans. The Summit FCU is federally insured by NCUA. Membership eligibility required. If refinancing a Summit Auto Loan, you must increase the outstanding loan balance by at least $1,000.

Cynthia Kolko, The Summit Federal Credit Union