Time to Refinance Your Auto Loan?

Money Matters for Cinfed Members

Is it Time to Refinance Your Auto Loan?

Look for lower interest rates, lower payments or shorter loan life

Posted on January 21, 2020
Topic Categories: Consumer Help

Stack of coins with toy car

By Michael Mason - Vice President, Lending

Having a new car feels great! But, what happens if you feel the pressure of the monthly payments before the new car smell wears off? You may be able to find a better deal on your auto loan. There are three primary reasons that it may be time for you to consider refinancing.

Three reasons to refinance an auto loan:

1. Lower monthly payment.
You may have been ambitious when you took out your initial car loan – or maybe you’ve had a change in your life or financial situation that has affected your personal budget. To adapt to changes in your life, refinancing can bring monthly payments down so they fit better with the rest of your living expenses.

2. Lower interest rates.
Advertisements for very low interest rates at auto dealerships sound too good to pass up. But the fine print tells us those rates are reserved for people with near-perfect credit history. If your credit history didn’t meet the highest standard, you’re likely paying a higher interest rate than advertised.

You may be able to find a lower interest rate. The prime interest rate can fluctuate, and market changes since you purchased the car may result in lower rate opportunities for you. In addition, your credit score may have improved since you bought the car, meaning you could qualify for a lower rate. Credit unions typically offer lower interest rates than banks and auto finance companies. If you can shave a little off your interest rate, your monthly payment may go down a little too.

3. Shorter loan life.
Another reason to refinance an auto loan is to shorten the lifespan of the loan. A 72-month loan can feel like a long and winding road to ownership. Refinancing may offer a quicker route to paying off your vehicle. Your monthly payments may increase but you’ll pay less interest in the long run. And your car will truly be “yours” that much sooner. Get an idea of what you can afford here.

When is the right time to refinance my auto loan?

The sooner you refinance to a lower interest rate the more money you can save over the life of the loan. Usually borrowers benefit most when they refinance between six months and two-and-a-half years of the original auto loan.

When to consider gap insurance for your auto loan

Gap insurance helps protect you if you owe more on your car than it might be worth.

New cars lose value quickly over the first year or two of ownership. If you were to have an accident early in the life of your loan and your car is “totaled,” auto insurance may not cover the full amount you owe on your vehicle.

For example, in the second year of ownership you may owe $20,000 on your auto loan. But your car may only be worth $16,000 due to depreciation. Auto insurance only covers the value of the vehicle, not what’s left on the loan.

Gap insurance covers the difference between your car’s value and the amount you owe on it. You can use tools like Kelly Blue Book and Edmunds to find the difference between your vehicle’s value and the amount you owe. If you can’t cover the difference, gap insurance may offer you peace of mind.

To learn more about auto loans and gap insurance visit your local Cinfed branch, our online Financial Education Center, or attend a Skill Session in person.


Cinfed Credit Union
4801 Kennedy Avenue
Cincinnati, OH 45209
(513) 333-3800
Routing #242076656


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