Mama Bear Blog

Why Should You Refinance Your Car Loan Online?

Blog Post by Jon Friedland - 10/4/18

Refinancing your auto loan online can be a smart way to meet your monthly budget goals, save money, and even improve your credit score.  Done right, it’s like earning a free vacation.  We’ll show you how to refinance your car loan online now.

Refinancing your auto loan online can save you money by:

  1. lowering your interest rate
  2. extending your loan term
  3. skipping a monthly car payment

or all 3.

To see how this works, meet Amanda.

Amanda owed $26,758 on her auto loan, with an 8% APR and 48 months left to go.  Since she took out her car loan, Amanda’s credit has improved (yay!).

Lower Interest Rate: Amanda’s monthly payment drops $25.

By refinancing her car loan, Amanda lowered her APR to 6%.  Amanda’s auto dealer could have offered her a 6.5% APR on her original loan, but marked up the loan by 1.5% (without telling Amanda – that’s legal!).  Amanda’s hard work to improve her credit saved her another 0.5%.  The result?  Amanda’s monthly payment dropped by $25 and she saved $1,190 in interest over the life of her loan.

Skip A Payment: Amanda skipped her monthly payment.

The first payment on Amanda’s new loan was not due for 45 days, which is typical for an auto refinance . Skipping that payment allowed Amanda to pay off $500 in credit card debt with a 24% APR.

Extended Loan Term: Amanda’s monthly payment drops $116.

Imagine if instead Amanda had extended her 48 month loan to a 60 month term, with a 7.5% APR thanks to her improved credit.  Her monthly payment would have dropped by $116.  Even though she would be paying the loan off for longer, her stress levels would decline instantly with a more manageable monthly budget.

Improve your credit score by refinancing your car loan online

Refinancing your car loan online can improve your overall financial health.  Here are some ideas:

  • Pay off credit card debt, part 1: Credit card APRs can easily top 20%, but the average APR for a new car loan is ~5%.  You can refinance your car loan and use the savings to pay off credit card debt.
  • Pay off credit card debt, part 2: Part of your credit score includes how much you’re using the credit available to you, known as “utilization.” If you have a $500 credit card limit and a $450 outstanding balance, you are at 90% “utilization.” Getting your “utilization” down to 30% ($150 in our example), can improve your credit score.
  • Pay off a collection account. A collections account on your credit report can lower your credit score by 100 points.  If you skip a payment by refinancing (like Amanda), you can put that money toward paying off old debts.


‘Bear in Mind’

We never focus only on monthly payments when arranging or refinancing an auto loan.  Your APR is critical: the lower, the better.