5 Reasons to Refinance an Auto Loan

You have a lot of options when it comes to strategizing your budget. You’ve likely looked at your grocery spending, electricity bill and savings accounts, but did you know you may be able to save money on your current vehicle loan?

If you’re looking for ways to improve your financial picture, now may be a good time to consider refinancing your auto loan. This doesn't mean you necessarily need to cut all entertainment spending or stop eating out completely. Restructuring your auto loan can be an easy way to save time and money, and get your budget on track.

Why should you refinance your car loan? Here are five reasons to consider:

1. You want to shorten the length of your loan.

   When you check your auto loan statement, does it seem like you’re not getting any closer to paying it off? You’re not alone.

   Aside from getting a new set of wheels, one of the great things about purchasing a car is that there are numerous options when it comes to financing. You’re not necessarily stuck with the contract you originally signed.

   If you didn’t end up with favorable terms during the initial purchase—or your financial situation has changed—consider adjusting the loan term to pay it off faster. You could save $1,000 or more over the life of your loan.

2. You want to lower your monthly payments.

   If your biggest concern is decreasing your monthly payment, a refinance option can help you get there. And who doesn’t want a lower monthly payment?

   Keep in mind, this may extend the term of your loan a bit, but you can work with your lender to make sure that you’re getting a great, low rate while keeping more of your income to put toward other goals.

3. You want to simplify your finances and save money.

   By leveraging your vehicle's equity during refinancing, you can roll existing high-interest obligations, like credit card balances or personal loans, into your new auto loan.

   This strategic move typically secures a lower overall interest rate—potentially saving thousands over time—while simplifying your monthly bill-paying sessions. With fewer monthly payments to track, including multiple due dates and varying terms, you could experience reduced stress, improved cash flow and a clearer path toward financial freedom.

4. Interest rates have dropped.

   Interest rates fluctuate, going up and down based on the market. When you see loan rates improve (go down), that’s the time to consider refinancing.

   Ideally, you want to refinance to a new interest rate that is at least 1% lower than what you currently have. Anything less than 1% may not be worthwhile once you do the math.

   As you shop around, keep in mind that you may find better rates getting your financing directly from a financial institution instead of the dealer. Be sure to check all your options to ensure you’re getting the most competitive rates.

5. Your lease is going to expire soon.

   So far, we've been discussing refincing an auto loan. What if you're leasing a vehicle? Refinancing is an option for you too!

   When you refinance a car lease, you buy the vehicle outright and secure a new loan—which will likely have different terms than your lease—to finance the purchase. Before you commit to this strategy, be sure to investigate thouroughly. You could be assessed a penalty for paying off your lease early.

How will a refinance affect your overall credit score?

Understanding how credit scores are calculated can help you make smarter financial decisions, especially when considering refinancing options. Your credit score is built from five key components, each carrying different weight in determining your overall financial health.

Your credit score is primarily shaped by your payment history, accounting for 35% of the total calculation. This means consistently making your payments on time is the single most influential factor in maintaining a healthy score. Lenders also view your payment reliability as a strong indicator of future behavior.

The next most important component is amounts owed, representing 30% of your score. When refinancing for the same loan amount, this aspect remains essentially unaffected. Following this is your length of credit history at 15% (where refinancing has minimal impact since your old loan appears on your report as "paid"), credit mix at 10% (which refinancing typically doesn't change), and new credit inquiries at just 10%.

Within this final category, credit inquiries represent only a fraction of the impact—often just a few points on the 300-850 scale. This explains why concerns about the temporary effects of refinancing inquiries are largely misplaced—it just doesn’t make financial sense to sacrifice potential monthly savings to protect against a minor, short-term point reduction.

Still not sure if refinancing your auto loan is really worth it? Contact Mountain America Credit Union today. Our team can review your current loan and explain how we can help.