Should I refinance my car loan?

July 1, 2024

What Does It Mean to Refinance My Car Loan?

Refinancing a car loan involves obtaining a new loan to pay off your current one. This new loan replaces your existing loan, and you'll start making monthly payments on the new loan. People choose to refinance for various reasons, but the primary goal is often to save money, whether in the short-term or long-term. However, it's important to consider both the potential benefits and drawbacks before making a decision.

Why should I refinance? And when?

As mentioned earlier, people generally refinance their car loans to save money. You can refinance to lower or increase your monthly car payment. Increasing your payment allows you to pay off your whole car loan quicker so you spend less money on interest, which overall decreases the total amount of money you’re paying on your loan. Lowering your monthly payment may do the opposite, but it can help you free up extra money every month, even though you do technically pay more money in interest because your loan repayment timeline has been expanded. You can also refinance to a lower interest rate, which will help you save money every month and over the life of the loan.

According to Investopedia, interest rates for car loans can change as often as daily. So you should always check current car loan rates before car shopping and even consider getting preapproved from a financial institution. TVFCU works very hard to keep interest rates low for all of its members, its lowest rate is 6.24% and the national average car loan interest rate is at 9.56%, according to MarketWach. Both rates are as of July 1, 2024.

The best times to refinance your car loan are when interest rates are down, you’re fairly early into your car loan payments, and your credit score has increased. If your credit score has increased then you will most likely then become eligible for loans at a lower rate. All car loans operate similar to mortgages in the way that they are amortized, meaning all of your monthly payments will have a percentage that goes directly to the total interest charged. This means that it’s usually better to refinance early into paying off your loan because you haven’t paid off a significant portion of the loan yet.

Is there any instance where I shouldn’t refinance?

There are a few instances where it may be smarter to not refinance your vehicle. Some financial institutions actually have penalties set in place if you pay off your car early, usually the penalty is a small percentage of your outstanding balance – so certainly keep that in mind when deciding what may be better based on your current financial situation. If most of your original car loan is paid off already that means you’ve also most likely paid a significant portion of the interest to where it may not be worth it to start a new loan with more interest for you to pay off.

How do I refinance with TVFCU?

There are three ways for you to apply for auto loan refinancing through TVFCU:
1. Apply online following this link.
2. Call 634-LOAN 423-634-5626 to apply or get preapproved.
3. Video chat from anywhere with TVFCU LiveStream.

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