Are you stuck with a high-interest rate car loan that you can’t afford? Refinancing your vehicle could save you some money if you can qualify for a better rate, and at a credit union you may benefit from more flexible repayment terms and more personalized customer service.

What’s involved

Refinancing a loan means borrowing again to repay the earlier debt, usually with terms that reduce your monthly payment or give you more time to pay, or both. The point of refinancing is to get a better deal – a lower interest rate could result in hundreds of dollars in savings while a longer term may make paying off the debt easier on your budget, even if it doesn’t result in lower interest costs.

Does refinancing your vehicle make sense?

Before you start, make sure that refinancing is your best option. In some cases, you might be better off keeping your current car loan and finding another way to save.

Here are a few things to consider:

  • How much do you still owe on the loan, and what’s the interest rate? You should be aware of how the interest rate on your loan affects your monthly payment, and how much you would save at a lower rate.

  • Depending on how much you owe, a reduction of one or two percentage points on the interest rate you’re paying may result in some significant savings. Use an online loan calculator to see how different rates and terms may affect your monthly payment to determine what you might save by refinancing. In some cases, the amount may not be enough to merit the fees you may incur by taking a new loan.

  • Refinancing may make sense if your credit score has improved a lot since you financed a car purchase. If your credit score hasn’t gone up or has fallen, you may have a hard time getting a better deal.

  • You can check your credit reports for free at Make sure all the information about you is accurate and up-to-date. It’s possible that errors are negatively affecting your score.

  • How many years do you have left on your current loan? If you have just one or two years remaining, you might not want to refinance into a new loan with a longer term, since that may mean paying more in total interest. But if your goal is to reduce your monthly payments, this may be the way to go.

  • Does your current loan come with a prepayment penalty? Some lenders will charge a fee if a borrower pays off the loan early, so you should check over the terms of your existing loan carefully.

Why refinance through a credit union loan?

If refinancing is right for you, here some potential advantages of relying on a credit union instead of a bank:

Lower interest rates: Credit unions are member-controlled not-for-profit organizations – so earnings are passed back to members in the form of lower rates and fees. By comparison, banks are corporations controlled by profit-seeking owners or investors. In March 2014, the average four-year used-car loan from a credit union was 2.61 percentage points lower than the average bank-issued financing, according to the National Credit Union Administration.

Flexible repayment terms: Some credit unions offer financing on up to 100% of the vehicle’s value and provide various repayment options, like debiting from your checking account and payroll deductions, no prepayment penalties and adding loan-protection products.

Better service: In 2014, credit unions ranked high on the American Customer Satisfaction Index, with a score of 85. The index scores are based on customer surveys about their experience with a lender, including staff courtesy, the variety of financial services and interest rate competitiveness, according to the ACSI website.