You might have heard us say “refinance your auto loan to ēCO” a time or two… but do you know what it means to refinance your auto loan?
Refinancing a car loan is simply taking on a new loan to pay off the balance of your existing car loan.
Car loans are considered secure loans because they are secured using your car as collateral. You have fixed monthly payments over a set period of time. Payments are a combination of principal (the original amount you borrowed) and interest (the cost of borrowing the principal).
Depending on when you financed your car, refinancing can be a good solution to help you save money over time. A few factors to consider:
Interest Rates
Have interest rates dropped since you financed your vehicle? Refinancing to a lower interest rate can save you hundreds—or even thousands—over the life of the auto loan.
Don’t believe us? Check out this math…
Let’s say you finance a new car for $30,000. At 6% interest for 60 months, you will pay $579.98* per month. When you pay off the loan in five years, you will have paid $34,799.09.
Take that same car… refinance it at 2.40%, and your payment will be $531.10* per month. At the end of five years, you will pay $31,865.95.
| |
Auto Loan Before Refinancing |
Auto Loan After Refinancing |
|
Principal
|
$30,000 |
$30,000 |
|
Interest Rate
|
6% |
2.40% |
|
Term
|
60 months |
60 months |
|
Monthly Payment
|
$579.98 |
$531.10 |
| Total Principal and Interest Paid |
$34,799.09 |
$31,865.95 |
Even though you financed the same amount, a lowered interest rate saved you $2,933.14.
Want to crunch numbers using your exact scenario? ēCO’s loan calculator can help.
Monthly Payment
If you’ve had your car loan for a while, you’ve more than likely chipped away at the principal balance. By refinancing, you can choose your term (how many months you will finance the loan) and could potentially lower your monthly payment by financing less principal or extending your term. Whether you’d like to free up a little bit of money for travel or have found yourself in a situation where you need extra available cash, refinancing can help by bringing down your monthly payment.
Time for another example…
Let’s say you finance a new car for $30,000. At 4% interest for 60 months, you will pay $552.50* per month. After 18 months of making payments, you will have paid $9,945 and will owe approximately $21,620.06.
If you refinance the remaining principal, drop the interest rate a little to 3.50% and keep the term at 60 months, your new payment will be $393.31*. You’ll have paid $23,598.30 in principal and interest when you pay off the car in five years.
| |
Auto Loan Before Refinancing |
Auto Loan After Refinancing |
|
Principal
|
$30,000 |
$21,620.06 |
|
Interest Rate
|
4% |
3.50% |
|
Term
|
60 months |
60 months |
| Monthly Payment |
$552.50 |
$393.31 |
| Total Principal and Interest Paid |
$9,945 |
$23,598.30 |
By refinancing, you’d lower your monthly payment by more than $150 per month.
Credit Score
Has your credit score improved since you financed your vehicle? Credit plays a big role in determining your interest rate. Even if rates haven’t change drastically since you financed your auto loan, a higher credit score can help you qualify for a better interest rate.
Thinking about refinancing your car loan now? ēCO Credit Union wants to help you! Stop by any ēCO Credit Union branch for a free loan review or start the application process online. We’re also offering some great perks to refinance or finance your auto loan with ēCO this summer**:
- We’ll beat or match your current rate or the rate offered to you by another lender.
- We’ll give you $200 cash!
- You’ll make no payments for the first 90 days.