Most people need an auto loan when purchasing a new or used vehicle. However, the loan you start with does not have to be the loan you live with for the entirety of the repayment period. People choose to refinance auto loans to take advantage of better interest rates, to adjust monthly payments when their financial situations change, or to access better terms and customer service with a new lender. When it comes to auto refinancing, credit unions provide some distinct advantages regarding interest rates, terms, and flexibility.
What Is Auto Loan Refinancing?
When you refinance an auto loan, you’re replacing your original car loan with a new one. You secure a new loan for your car, and you use that money to pay off your original loan. Your payments and interest are now made to the new lender instead of the old one. Essentially, you’re transferring your debt from one place to another.
Some of the reasons people opt to refinance include:
- Getting a better interest rate
- Lowering monthly payments
- Extending the terms of the loan
- Taking advantage of equity
- Capitalizing on no-payment periods
Refinancing an auto loan is simpler than refinancing other types of loans, like a mortgage. Many lenders don’t charge origination or application fees, meaning you don’t have to budget for these fees when considering refinancing. The application process is typically simple, with some lenders offering a decision in as little as a day.
Why Refinance With a Credit Union?
Credit unions are tax-exempt nonprofit cooperatives that provide banking services. They differ from traditional banks in that all members technically own part of the credit union. Because credit unions aren’t in the business of making corporate profits, they can often offer better interest rates and lower fees than traditional banks. However, credit unions may not have as many physical locations, ATM spots, or loan options as people enjoy at traditional banks.
Many credit unions offer flexible loan terms and are willing to work with customers to help them save money through refinancing. Here are some additional benefits of a credit union auto refinance:
- Lower average interest rates than the national bank average
- Good customer service
- Added benefits like debt protection and gap insurance coverage
You have to be a credit union member to apply for a loan, so you’ll need to open an account with the credit union. They typically have membership eligibility requirements, meaning you need to live in a specific geographic area or be affiliated with an employer, like a university. Find out what kind of auto loan terms a credit union offers before becoming a member. Some credit unions wrap the process into one, so you can become a member and take out your auto loan at the same time.
What Refinancing Options Are Available?
The available interest rates on auto loan refinancing depend on how long the loan term will be and whether the loan is for a new or used car. This specifically refers to how old the car itself is, rather than if you bought it new off the lot or from someone else. For refinancing purposes, new cars are usually only a year old and have a limited number of miles on them. All other cars, even one you bought new three years ago, are considered used.
Car loans come in a variety of lengths. The shortest is typically 36 months, and the longest is usually 84 months, with the interest rates increasing as the loan term increases. A few establishments will offer 96-month loans, but loans longer than 84 months are typically only available for new vehicles.
When Should You Refinance?
Understanding when to refinance is important when making smart money decisions. Typically, people refinance when they find themselves in the following situations:
An Increase in Credit Score
A low credit score when getting an auto loan means higher interest rates. If you’ve improved your credit score since taking out your car loan, refinancing to access better rates is a good idea. This also depends on the financial market, since interest rates fluctuate. You may be able to get a better rate simply by waiting for rates across the board to go down.
A Need To Lower Payments
Financial situations change frequently, and sometimes people need to find places to cut back on monthly expenses. Refinancing an auto loan can help lower monthly payments. Specifically, you can lower payments by finding a better interest rate or extending the term of the loan.
Now that you’ve paid back part of what you owe on your car, you need to refinance less money than when you started. If you have two years left on your auto loan, one way to reduce payments is to add time to that term in your refinancing. Be aware that lengthening the loan term may mean you end up paying more in interest than anticipated when you add everything up. However, if you need to free up cash every month, a longer loan term can help you do that.
A Desire To Change the Loan Length
Shortening the loan term is also an option. This means that you’ll pay less in interest overall. If your financial situation is better than when you took out your original loan, you may have more cash available to make larger payments now. Refinancing for a shorter loan term gets you lower interest rates and means you can reduce the amount of time it’ll take you to pay off the loan and own the car. That lower interest rate, combined with a shorter repayment period, means you save cash in the long run that otherwise would’ve gone to interest payments.
Credit unions offer low interest rates, good customer service, flexible terms, and no payment periods at the start of the refinanced loan term. They are a smart choice for many people who are looking to refinance an auto loan. Shop around and try the repayment calculator tools many credit unions offer on their websites to find out if refinancing can help you save money, lower your monthly payments, or get that car loan paid off faster.

At FIXD, our mission is to make car ownership as simple, easy, and affordable as possible. Our research team utilizes the latest automotive data and insights to create tools and resources that help drivers get peace of mind and save money over the life of their car.