Should You Refinance Your Auto Loan? Here’s What to Know
🕒 4-minute read
Life (and your finances) can change quickly—so it’s only natural to ask whether your auto loan still fits your needs. At Rave Financial Credit Union, we’re all about helping you make smart moves with your money, and refinancing your auto loan could be one of them. Let’s take a closer look at how it works, when it might make sense, and what to watch out for.
What Does It Mean to Refinance Your Auto Loan?
Refinancing your auto loan means replacing your current loan with a new one—either from your current lender or a new financial partner (like Rave!). The goal? To get better terms that work for you. That might be a lower interest rate, smaller monthly payments, or even removing a cosigner from the loan.
Whatever the reason, it’s all about finding a fit that supports your financial goals.
How Does Auto Loan Refinancing Work?
The process is more straightforward than you might think. Here’s what you can expect:
1. Apply for a New Loan
Start by finding a lender you trust. When you apply, you’ll provide basic personal and financial information—things like your income, employment status, and credit history.
2. Share Info About Your Vehicle
Because your vehicle secures the loan, your lender will want details like mileage, make, model, and its current market value. Having positive equity (when your car is worth more than you owe) can make refinancing easier.
3. Credit Review & Loan Estimate
Your lender will check your credit and assess your application. If approved, you’ll receive a loan estimate outlining your new rate, monthly payment, and loan term.
4. Sign & Finalize
Once you accept the offer, your new lender pays off the existing loan. From there, you’ll start making payments on your new auto loan—hopefully with terms that feel a lot better.
When Might Refinancing Be a Good Idea?
Everyone’s financial situation is unique, but here are a few common reasons members choose to refinance:
✅ You Want a Lower Interest Rate
Maybe your credit has improved, or you didn’t have a chance to shop around when you first got the loan. Refinancing can help you score a lower rate—and that could save you serious money over time.
✅ You Need Lower Monthly Payments
Stretching out the loan term can reduce your monthly payment, which might help you stay on top of other financial obligations. Just remember: longer terms may mean paying more interest over the life of the loan.
✅ You’d Like to Remove a Cosigner
If someone helped you qualify for your original loan but you’re now ready to take it on solo, refinancing can help you remove them—provided you meet credit and income requirements on your own.
✅ You Want to Tap into Your Car’s Equity
If your vehicle is worth more than what you owe, a cash-out refinance lets you borrow against that equity. It’s a way to access cash for things like home projects or consolidating high-interest debt.
When Refinancing Might Not Make Sense
Refinancing isn’t the right move for everyone. Here are a few situations where it might be better to stay the course:
🚫 You’re Almost Done Paying Off Your Loan
If your loan is nearly paid off, refinancing could mean extra fees and more interest—making it more costly in the long run.
🚫 Your Credit Score Has Dropped
If your credit has taken a hit since you first financed your car, you may not qualify for a better rate. In that case, focusing on rebuilding your credit could be the smarter strategy.
🚫 You’re Planning to Sell the Car Soon
Refinancing comes with costs, so if you won’t keep the car much longer, you might not save enough to make it worth it.
The Bottom Line
Refinancing your auto loan can be a powerful financial tool—but only if it aligns with your current goals. At Rave Financial Credit Union, we’re here to help you weigh the pros and cons, understand your options, and decide what’s right for you.
Thinking about refinancing? Let’s talk it through together. We’re here to help you drive your financial future forward—with confidence.