Refinancing a Car Loan: Bank or the Credit Union?

We often think about refinancing home mortgages, but sometimes we forget that we can also refinance other loans such as car loans. If you are thinking about getting a new loan for your car, there are several options available to you. You could, for example, refinance your loan through a large "brand name" bank. Or you could go to a local credit union and try to get a loan. Depending on your financial status and needs, one might be preferable to the other.

Elements of refinancing with a traditional bank

If you decide to refinance your car loan through a traditional, big-name bank, chances are good that the process will be efficient and relatively impersonal. And depending on your needs, the impersonal part might be just fine.

Traditional banks will take into great account your financial history such as your credit score and payment history on all of your debts. Most large banks will process your refinance over the phone or Internet, which means it's quite likely that you won't have to meet anyone in person.

Elements of refinancing with a credit union

If you belong to a credit union, you might want to consider processing your refinance through it. That's because credit unions are smaller entities, and thus your personal history and relationship with that credit union could be used to your advantage. Let's say you have less-than-ideal credit, but have a great history with the credit union. It could be in your best interests to look into the credit union.

Also, it might be worth investigating the different interest rate programs offered through a credit union, as opposed to the traditional bank. With this process, however, you're likely to need to process everything in person, and that could take extra time.

Factors to consider, no matter the financial institution

Whether you select a traditional bank or a credit union, there are some important factors you should consider when refinancing a car loan:

• Do you have good credit? Better to check it now so you're prepared for the process. If you are having credit difficulties, you might need to prepare for a longer loan application and approval process.
• What term should you think about? You might want to consider shortening the overall term of your loan, which means you'll pay it off faster and will own your car outright sooner. If your new loan's interest rate is lower than your old loan, you might be able to reduce the term significantly for little to no difference in monthly payment.
• What are the proposed interest rates? Be sure you know your existing loan's interest rate so you can compare it to the proposed refinance interest rates you receive. Make sure you compare these new rates (and proposed fees/monthly payments) to your existing loan, so you can select the best loan for your situation.