Not just for mortgages, refis can mean big savings over the life of your car loan
When you hear the word “refinance,” what usually comes to mind?
A mortgage loan, right? And in the current landscape, there’s no better time to restructure your home loan.
But did you know you can also refinance a vehicle loan? Often, when you finance a vehicle, you simply “set it and forget it”—you make your monthly payments for four years, six years, then you own the car outright.
However, with the right circumstances, refinancing an auto loan can result in significant savings or relief. Rates change. Your financial situation improves. Suddenly, you might be in position to switch to a lower rate and shorter term, which would mean more goes toward your principal balance and your loan gets paid off more quickly. Or you could reduce your monthly payment amount with a better rate and either stand pat on your loan term or extend it—and enjoy savings by virtue of having more money in your pocket each month.
“Refinancing an auto loan is like refinancing a mortgage,” said Michael Sauley, Vice President, Consumer Lending at SELCO. “Like mortgage rates, auto loan rates have been decreasing. A 2% reduction in rate can save a borrower more than $1,000 in interest on a $20,000 five-year loan. Getting cash out for other needs is also an option. There are multiple reasons why it can make sense to refinance your vehicle.”
Below are a few of the most common reasons. If any strike a chord, the time may be now to explore your options.
Shorter term, lower rate
SELCO is currently offering a competitive auto loan refinance promotion in which borrowers can enjoy a 0.50% interest-rate deduction if their loan balance is less than or equal to 75% of the vehicle’s value. At SELCO’s current rates (compare them to the national average), this could result in a rate as low as 2.49% on a 2018 or newer vehicle and 2.69% on a 2017 or older model. Even if the loan-to-value is above 75%, you can still lock in to SELCO’s low rates by reducing your term. Your monthly payment may increase, but you will cut into the principal balance and own the car sooner.
Excellent credit excellent rate
One of the biggest factors in determining your auto loan status is your credit score. The higher the score, the lower the interest rate. A score above 760 will likely ensure you get the lowest possible rate. Regardless of whether you want to pay off your loan quicker or extend it to lower the payments, a good credit score will work in your favor. Access your credit score for free to see if you’re a candidate for a great rate.
Longer term, lower payments
Need to free up money in your budget? Reducing your car payment could be a good start. Say you have $20,000 and 50 months remaining on your loan at a 5% interest rate. By refinancing to a 60-month term at 4%, your monthly payment would drop from approximately $444 to $368. Yes, you will spend more in interest expense over the life of your new loan, but there are times when an extra $76 per month in your budget can make sense based on your priorities. And should your financial situation stabilize over time, you can always make extra payments or pay more each month.
Refinancing an auto loan is all about finding balance between your immediate needs and long-term financial health. Call SELCO at 800-445-4483 or apply for free online to see if refinancing is right for you.