Is it time to refinance your auto loan?

Happy siblings on a summer road trip
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When my husband and I bought our first car together, a 1980s-era Subaru wagon that backfired whenever it went uphill, we bought it with what we had in our bank account. Twenty years later, we took out our first car loan to buy a minivan, much maligned but increasingly necessary.

Although it was unnerving to commit to a monthly payment over the next 10 years (yikes, the kid would be 13 by the time we paid it off!), it was well worth it. I can fit five kids in there. FIVE! And, we can throw everything in there, including the Hilton of tents, when we go camping.

As it happened, the year the Subaru finally gave up the ghost and we needed to purchase the van, interest rates weren’t at their best. A couple of years later, we noticed that the rates had dropped, like all the Cheerios on the floor of the van, and decided we should consider refinancing that loan.

When my husband first suggested the idea, I was reluctant. After all, he was the one who drove into the garage with the bikes still on top of the car. Crunch. Plus, while I knew we had benefitted from refinancing our home loan, I remembered all the anxiety and research that went into that refinance. Lucky for me, many of the advantages of a home refinance can apply to a car loan, but without the same complexity or cost.

Right now, if you refinance your car loan with Oregon Community Credit Union (OCCU) promises to lower your current rate by 1 percent or lower your monthly payment by $100. If they can’t do either, they’ll pay you 1 percent cash back*. Tempted? Here are some of the things you should consider.

Is your current interest rate higher than what you could get today? We all know interest rates change, but sometimes people don’t realize how much your interest rate can affect your monthly payment. Here’s a link to a basic calculator that can help you see what you would save by lowering your interest rate even just 1 percent.

Has your credit score improved? Life has happened since you bought your car. Maybe you paid down debt or bought a house, both can positively impact your credit. As with any loan, you need good credit to qualify for an auto refinance and your interest rate is partially determined by your credit rating. According to FICO, you need a FICO score of 720 or more to qualify for the best auto loan rates.

Are you in a longer term loan (five-eight years)? Sometimes people try to keep a lower monthly payment by extending the life of the loan. The downside of this approach is that you end up paying more interest over time. With a lower interest rate, you may be able to refinance your loan for a shorter term without significantly increasing your monthly payment. Because you pay more loan interest up front, you’ll generally benefit more if you refinance in the beginning of your loan, rather than towards the end.

Is there anyone who should not consider refinancing their auto loan? Yes, if your existing loan has a prepayment penalty or the new loan contains fees that would negate the potential interest savings. Also avoid refinancing if it will extend the life of your loan, unless you are in danger of missing payments or defaulting on the loan altogether.

Unlike refinancing a mortgage, refinancing your auto loan usually takes just a couple of hours. The first step is to ensure you understand your current loan terms. Check your monthly statement for the interest rate, remaining balance, and payoff amount. Then, research interest rates, terms and minimum amount required for refinancing. Remember to check out OCCU’s deal, where we’ll lower your current rate by 1 percent or lower your monthly payment by $100. If we can’t do either, we’ll pay you 1 percent cash back.

As it turned out, refinancing the van was a good choice for us. We ended up saving enough to pay off the loan early. Ok, my husband was right. Maybe I should finally forgive him for crunching the bikes.


*Offer available for all titled vehicles. Not available on current Oregon Community debt. Loan terms available may vary depending on amount borrowed, credit history, payment method, and model, make, year, and mileage. Rebate, if applicable, is given at time of refinance and is 1% of the loan amount rounded up to the nearest $5. $500 maximum rebate per vehicle. If the refinanced loan is paid off within 12 months, the rebate must be repaid. Credit qualifications apply. Membership requirements apply. Other exclusions and/or restrictions may apply. Offer subject to end at any time, without notice.

Refinance Annual Percentage Rate (APR) 1.99% to 15.99%. Rates may change and are current as of 4/1/16. For example, on a refinance loan for $30,000 at 1.99% for 60 months, you would make 60 payments of $525.70.