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How Refinancing Your Car Loan Can Save You Money

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, you might be able to save yourself some cash in the long-run.

Take Advantage of Low 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.

For example, the average rate for a new car at the end of 2019 was 5.76%.

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.

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.

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.

Run the Numbers

A smart and easy way to figure out if refinancing your car loan is the right move is to simply plug in some numbers. You’ll need two things to help you get started: your budget and a financial calculator.


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.


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.

United has auto loan calculators that let you figure out monthly loan payments and can even help you understand how much you can afford for a new car.

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.

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!