Should I refinance my auto loan?

People often want to refinance their auto loan for various reasons. As with any financial decision, there are pros and cons to consider.

The Pros of Auto Refinancing:

1. Lower your monthly payments. Refinancing into a new auto loan with a different rate and term (the time period you take to repay the loan) could result in a lower monthly payment towards your car, providing additional cash flow that you might need. Keep in mind, though, that extending the term of the auto loan could mean that you pay more overall.
2. Pay less interest on your auto loan. With a lower auto loan rate or a shortened term, you may be able to pay less for your car over the life of the loan. There are a variety of factors that may contribute to a lower available rate such as your improved credit score, a change in the rate environment, or choosing a new lender with better rates and terms.
3. Pay off other debts. If you have equity built up in your vehicle, you may be able to get a “cash out” refinance. This mean that you borrow more than you currently owe, giving you extra cash that you may be able to use to pay off other high-rate debt.

The Cons of Auto Refinancing:

1. You might spend more long term. If you lower your monthly car payment by extending the term of the loan, you might end up paying more interest over the life of the loan.
   Imagine that your original auto loan was for $15,000 financed at 3.5% for 48-months. Your monthly payment would be $335. To keep this situation simple, we’ll pretend you’re refinancing the full $15,000 at the same rate of 3.5% but you extend the loan term to 60-months. Your new monthly payment drops to $273. Having the extra $62 a month might be worth the change, but you should know the tradeoff. With the 48-month loan, the total amount you pay back would be $16,080. At 60-months, the total amount you pay is $16,380.
2. Possible Title Transfer Fee. If you are auto refinancing from another lender, you will need to pay the DMV for a new title with the new lienholder listed. While the fee is minor and can vary depending on the type of vehicle, it is something to keep in mind.

Ready to refinance?

Talk to a Member Service Officer to determine if refinancing your auto loan makes sense for you. You can also use our loan payment calculator to estimate your monthly payments on your car. When you are ready to apply, simply call 503-220-2592, stop by a branch, or apply online.