Spring means it's time for peak car-buying season to begin. Whether you are purchasing a new car or refinancing your current car, there are strategies you can keep in mind to save money and make the process as painless as possible.
Jonathan Brouse, VP of Consumer Lending at Mountain America Credit union, joined us in studio to answer some questions.
With interest rates increasing over the last couple of years, people may be less inclined to refinance older loans with lower rates. However, depending on their overall debt picture, an auto refinance might actually save them money, even if the rate is slightly higher.
For instance, let's say someone has a 60-month auto loan they have been paying over the past three years. Maybe they financed that loan at 4.5% in 2021 and they still have a couple more years left to pay off a $12,000 balance. They also have a couple of credit cards that are carrying balances. If they have $8,000 on a card with a 26% APR and $4,000 on a card with 22% APR – both very common interest rates – they have $12,000 total credit card debt. That debt is accruing interest at 22% and 26% annually, respectively.
When you combine that $12,000 of high-interest credit card debt with the $12,000 of lower-interest auto debt, what you find is they have a "blended rate" of about 14.6%. That's the overall interest rate they are paying on their combined debt across those three different loans.
If they were to refinance their auto loan and roll those credit card balances into the refinanced loan, yes the auto loan payment rate would increase but it would be offset by the refinanced credit cards. Right now, Mountain America is offering auto loan rates as low as 6.49% APR . So, if someone refinances with Mountain America, instead of paying down that $24,000 of debt at the 14.6% blended rate, they are paying it down at 6.49%. Even though they're no longer in that more favorable auto loan, overall they are going to pay less interest on their total debt.
The smartest thing you can do is know how much vehicle you can afford. When you're on the lot and seeing all the different vehicles and options packages, it can be easy to fall in love with something that costs more than you were anticipating.
To help keep yourself from getting caught in that trap, get pre-approved for your auto loan through your credit union or bank. With a pre-approval, you'll know what your maximum budget should be, how much your maximum payment will be, and what terms you're agreeing to before you even start walking the lot. You'll also have better negotiating power at the dealership and the buying process will be streamlined because the loan-approval process has already been taken care of.
To see what auto rate you can qualify for and to start your pre-approval, go to macu.com/auto. There, you can also schedule an appointment with a loan officer who can guide you through the process.
*****Annual percentage rate. Loans on approved credit. Membership required—based on eligibility. Advertised APR includes 0.25% loan rate discount with MyStyle® Checking. Deposits are insured by NCUA. Actual APR based on creditworthiness. Limited-time offer. Any offer provided by Mountain America can change or be withdrawn at any time. Offer ends 3/31/2024.
