Refinancing Your Loans Could Save You Money
February 4, 2016
Eileen L., Financial Expert
Did you know you could save money on the loans and credit cards you have by refinancing? Refinancing these loans can lower your rates and you could save hundreds (or even thousands) of dollars over the term of your loan! If you have higher-rate loans, it’s always worth asking your lender to see if refinancing might be a good option for you.
What Is Refinancing?
When you refinance a loan, you are essentially replacing one loan with another loan. So, you could have a new term, a new interest rate, and a new payment. Let’s use the example of an auto loan. Say you financed your $20,000 car through the dealer at 11.99% APR for 5 years. If your credit score goes up or rates in general go down, you might be able to refinance for a lower rate after a year or two.
How Can Refinancing Help?
Using the example above, your monthly payment would be about $444. If, after a year, your credit score goes up and you can refinance the remaining 16,000 at 3.49% APR, your payment would drop by almost $100 a month to about $357 for the next 4 years. (You can see what your payments could be by using OU Credit Union’s loan calculators.)
Of course, all these numbers are just examples. Everyone’s situation is different, and your loan amount, rate, and loan term all affect your monthly payment. But, you could save a lot of money if you can refinance to a lower rate.
Think beyond just refinancing “like for like,” too. Instead of moving your credit card debt from a higher-rate card to another credit card with a lower rate, determine where you have equity and use it to your advantage.
If you have a vehicle that is paid off or has equity, you may be able to refinance it and use that additional equity to pay off higher-rate loans. Loans secured by collateral, like cars or houses, typically have lower rates than unsecured loans. Imagine how much you could save by refinancing even $5,000 worth of credit card debt to a lower-rate auto loan.
The Refinancing Process
So how does refinancing work? It’s actually much easier than most people think! At OU Credit Union, we help you through the whole process. Continuing with the auto loan example, you’ll need some basic information about your car, and then we take care of the rest. For an auto loan, you’ll also need the VIN and the payoff amount, which you can get from your current lender. If you want to refinance credit card debt or other debt into your auto loan, you’ll need those details, too.