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Is Refinancing Your Auto Loan the Right Financial Decision?

For many of us, our monthly car payment isn’t something we think about often. Typically, we lock into a set payment amount based on our loan rate and term, and might even have it automatically deducted from our checking account. But have you ever considered if your original loan terms are the best they can be? 

That’s where refinancing comes into play. By keeping an eye on interest rates or improving your credit score, you might be able to save yourself some cash on your auto loan in the long-run.

Take Advantage of Lower Interest Rates

Your financial situation can change quite a bit during the life of your auto loan—which is now averaging around five years or 60 months. Depending on your credit score at the time of purchase or market conditions, you might have had to settle for a higher interest rate—and that means more money leaving your pocket.

But by keeping an eye on interest rates or by improving your credit score, you could potentially qualify for a lower rate—making refinancing a smart option, and saving you money each month for the remainder of the loan.

Know Your Credit Score

As mentioned earlier, your credit score plays a big part in your interest rate. The higher your score, typically the lower your rate. If your credit score went up since you got the auto loan, you may want to consider refinancing.

By monitoring your credit score, and taking steps to improve it, you might find it beneficial to refinancing your auto loan at a lower rate. You can find your estimated credit score in the SavvyMoney section of your United digital banking. 

Here are some easy steps you can take to raise your credit score:

• Make payments on time
• Keep debts low
• Proofread your credit report and alert the bureaus of any inaccuracies
• Don’t open a bunch of accounts all at once

Also remember that the Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.

What's Your Auto Payment Budget?

It’s always important to know your budget, but especially when you’re looking at taking out a loan. Write down your current monthly car payment (it might also be beneficial to breakdown how much goes to principal and how much is interest).

Next, write down your gross (pre-tax) monthly income and do some quick math to find what percentage of your income is going to your car payment. Ideally, you’ll want to that to be below 10 percent of your gross monthly income.

So, if your gross monthly income is $5,000, your monthly car payment should be no higher the $450. Other factors, including other bills and monthly expenses as well as how often you use your car, greatly impact how much you should spend. That’s why it’s important to do an honest assessment of your budget and adjust as needed.

Auto Loan Financial Calculator

Financial calculators are a great tool that let you put in some estimated numbers to help you see how much you might pay for your car loan, and if refinancing makes sense.

Financial Calculator: Should I Refinance My Auto Loan?

It’s also a good idea to speak to a Member Service Advisor and have them walk you through the refinancing process. They can answer specific questions and help you find a loan that best fits your needs or goals. You can set an appointment with a United advisor or visit your local branch.

What You'll Need to Refinance an Auto Loan

To refinance your auto loan, have your recent auto loan statement and proof of auto insurance handy to get started. You may be asked for additional information including:

• Current lender's name
• Loan account number
• Payoff amount or recent statement
• Lienholder information, if available
• Vehicle details: year, make, model, VIN, estimated mileage
• Proof of insurance
• Personal identification

Ready to get started? You can apply to refinance your auto loan online right now.

Apply to refinance your auto loan online

The Bottom Line

If you aren’t happy with your current car loan payment, or if your financial situation has changed since you bought your car—it might be a good idea to think about refinancing to a better interest rate. Remember, you have options when it comes to your loan. 

Be sure to evaluate your budget and run some numbers to see if it makes sense to refinance. A United Member Service Advisor is always available to help talk with you and answer specific questions. 

The best part: refinancing is all about improving your situation. So, if it doesn’t make sense, you can stay with the loan you have. If it does make sense to refinance, you’ll end up saving money and lowering your monthly payment!