December 2, 2023

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How To Refinance A Car With A Credit Union

Can you refinance a car loan with a credit union? You can refinance an auto loan with a credit union, and doing so has many benefits. Choosing the right lender can help you secure the best rates, which results in lower monthly payments. Learn everything you need to know about refinancing a car loan with a credit union, including benefits and steps to begin the application process.

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What Does It Mean to Refinance a Car Loan?

Refinancing means applying for a new auto loan to replace your existing one. If approved, your new loan replaces your existing loan, which can lead to lower monthly payments if you secure a better interest rate. You have a few options available when choosing to refinance, with a credit union being just one of them.

Reasons to Refinance Your Auto Loan

The most common reason to refinance an auto loan is to qualify for a lower rate. A few reasons to consider refinancing your current loan include:

  • Cash-out equity: A cash-out equity loan allows you to take out a new loan for the full value of your vehicle. A cash-out refinance restarts your loan, and the lender issues you a check for any equity in your car. However, you’ll want to remember that a cash-out refinance loan extends your loan into a longer term, which may leave you owing more than your vehicle’s worth.
  • Remove a cosigner: A refinance loan allows you to remove a cosigner from your auto loan. You might remove a cosigner following a divorce or if the other person’s credit score decreases.
  • Reduce your monthly payments: Qualifying for a lower interest rate can lead to a lower monthly payment. Whether you’re struggling to make monthly payments or want to save more each month, refinancing your auto loan is one of the best strategies.
  • Pay less on the life of the loan: Low rates mean you’ll pay less for the vehicle over the loan term. With a new interest rate, you can save significant money on your vehicle’s financing.
  • Defer payments: Many lenders offer a grace period when refinancing, which can defer your payments by a few months, helping you catch up if you’re behind. Deferring payments, however, may extend the time until you pay off your vehicle.

Should You Refinance with a Credit Union?

Whether or not you refinance your auto loan with a credit union depends on many factors, including if you’ll qualify. Refinancing loan eligibility depends on elements like credit score, loan amount, and payment history.

It may be a good idea to refinance your auto loan if your credit score has improved, interest rates are lower, or you want to reduce your monthly payments.

Of course, comparing annual percentage rates and loan terms with other lending options, including dealerships, banks, and other financial institutions, is essential. A credit union might offer a lower interest rate, but this is not guaranteed.

A few great reasons to refinance with a credit union include:

  • Personalized service: Credit unions are known for personalized, helpful customer service. When you choose a credit union, you may work with the same bank representative or employee for all your loans.
  • Nonprofit business model: Credit unions function as a nonprofit, which means they may be more likely to offer you competitive interest rates and loan terms.
  • Lower fees: Credit unions are also less likely to charge expensive fees. Application and financing fees from big banks can add up and result in a higher monthly payment.
  • Ease of application: You can apply for refinancing through a credit union online or by visiting a bank branch. The great thing about credit unions is that many share memberships, meaning you can visit a different credit union to apply for a refinancing loan than the one where you originally became a member.
  • Seamless banking: Most credit unions today have mobile apps and online banking. Using these tools, you can easily transfer funds between your checking account and auto loan for timely, convenient payments.

Things to Know About Refinancing a Car Loan with a Credit Union

Here are a few essential things to know about refinancing a car loan with a credit union:

Most Credit Unions Require That You Be a Member

Most credit unions require that you’re a member to apply for financing through them. Some credit unions may allow you to join while applying, but others have membership eligibility requirements. Becoming a credit union member typically requires opening a checking and savings account. You can easily become a member by visiting your nearest branch.

Refinancing Affects Your Credit

Refinancing is similar to applying for an auto loan, which means the lender will pull a credit check. The interest rate you receive from the credit union will depend on many components, including credit score, debt-to-income ratio, and your history with the credit union.

Refinancing your auto loan can also indirectly affect your credit score by closing an older account and opening a new one. As long as you continue making timely payments, though, refinancing shouldn’t have too much of a negative impact. Additionally, if you compare refinancing loans within the same 14-45 days, multiple credit inquiries shouldn’t change your score.

Not Everyone Will Qualify

Not everyone will qualify for a refinance loan. Like applying for any auto loan, the lender will weigh elements including your credit history and income to determine your ability to make payments. When you refinance through a credit union, you must qualify for the loan and membership with the lender.

Many credit unions also have minimum loan amount requirements, so they may not refinance your loan if you only have a year or two left. However, it’s usually not a good idea to refinance an auto loan if it’s close to being paid off. You pay most of the interest at the beginning of the loan, meaning you’ll typically pay more for the vehicle if you refinance near the end of the loan term.

Refinancing an Auto Loan Isn’t Always Cheaper

The biggest benefit of refinancing an auto loan is to receive better terms. However, depending on the interest rate and the length left on the life of the loan, refinancing may not always be the cheaper option. Refinancing into a lower interest rate but for a longer period can result in you paying more for your vehicle than you would have with the original loan.

Refinancing Lender Options

You have a few options available when refinancing, including:

Credit Union

Refinancing an auto loan with a credit union can offer a personalized experience. Because credit unions encourage relationship building, some may be more likely to approve borrowers with low credit scores. Some credit unions even offer specialty auto loans to the armed forces and their family members.

Bank

Most banking institutions also offer refinancing loans. When compared to credit unions, big banks may have more loan options available. Because banks tend to have more customers than credit unions, you may find it easier to locate a physical branch with a bank than with a credit union.

Dealership

The dealership where you purchased your vehicle may offer to refinance. A dealership may be more convenient, especially if you already have a loan through them. They may also be more willing to refinance borrowers with bad credit.

However, since car dealerships are for-profit businesses, they tend to charge higher interest rates and auto loan fees. Prepayment penalties, which are fees the lender charges for paying off your loan early, are also more common.

How to Refinance a Car Loan with a Credit Union

You can refinance an auto loan with a credit union with the following steps:

Review Payoff Information

Reviewing the payoff quote from your current lender can help you determine if refinancing is right for you. This number should include the total payoff amount, including fees and prepayment penalties, if present. Be sure to consider how many payments you have left and how much you can save by refinancing.

Compare Rates

While credit unions may offer the most competitive interest rates, this is not always the case. It’s essential to compare rates among different lender types to find the lowest. Analyze quotes from various lenders, including credit unions, dealerships, and banking institutions.

Check Your Credit Score

Your credit score plays a crucial role in receiving better rates. A higher credit score usually means lower interest rates and low credit scores may make qualifying for a refinancing loan difficult. Check your Experian, Equifax, and TransUnion scores online before applying to refinance your auto loan. If your credit score is the same or lower than when you applied for your first loan, it may be better to improve your credit situation and wait to apply.

Become a Credit Union Member

Some credit unions require that you become a member before applying for any type of loan. You can become a member online, in person, or by phone. Membership typically requires ID, Social Security card, and proof of residence. Some credit unions may also charge membership fees.

Submit Your Refinance Application

To submit a refinance application, you’ll need to provide information about your existing loan, Social Security number, and income. After approval, the credit union will issue payment to your old lender, and you’ll begin making monthly payments to the new lender.

If you’re wondering, “Can you refinance a car loan with a credit union?” the answer is yes. While eligibility and available annual percentage rate terms vary, a credit union can be an excellent option for refinancing an auto loan. As with any loan, it’s important to compare interest rates among lenders to choose the best one.

Hearst Autos Research, produced independently of the Car and Driver editorial staff, provides articles about cars and the automotive industry to help readers make informed purchasing choices.

Headshot of Elizabeth Rivelli

Finance & Insurance Editor

Elizabeth Rivelli is a freelance writer with more than three years of experience covering personal finance and insurance. She has extensive knowledge of various insurance lines, including car insurance and property insurance. Her byline has appeared in dozens of online finance publications, like The Balance, Investopedia, Reviews.com, Forbes, and Bankrate.

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