I Saved Thousands by Refinancing My Car at a Credit Union

a row of new cars parked at a...
Arvind Balaraman/Shutterstock
Many of us have fallen prey to the pressures of a conglomerate car retailer, including myself. In 2011, I walked into a Toyota (TM) dealership with the sensible goal of simply checking out the merchandise. My lease was drawing to a close, and I wanted to see what my options were. Instead, I got caught up in the allure of shiny metal and, to my surprise, ended up leaving the lot with a new car.

Two years later -- after the excitement of new car keys clinking in my purse faded, along with that new car smell -- I realized that perhaps I hadn't made the best financial decision. I admitted my error and dealt with the mixture of guilt and frustration. Then I got motivated.

The first thing I did was consult a financial expert who specialized in car loans. I soon discovered that not only was I upside-down on my outrageous seven-year loan (yes, seven), I was going to overpay by thousands of dollars if I kept it. Knife to the wallet.

An Extreme Situation

Of course, paying extra in interest is part of the deal when you don't pay cash for a car. My situation was slightly more extreme, though, due to the length of my loan and my relatively high interest rate, which was non-negotiable at the time, thanks to Scion's funky set of rules.

So what's a gal to do when she feels the sharp claws of a corporation digging into her sensitive bank account? She does a bunch of research and evaluates all her options, that's what.

I started by Googling "car refinancing." Instantly, a bounty of bank's promising super-low rates populated my browser window. I began by checking out my own bank, JPMorgan Chase (JPM), and quickly learned that the fractional difference between the interest rate it offered and what I already was paying meant it wouldn't be worth the trouble of refinancing. Then, I followed the recommendation of my financial adviser and moved on to local credit unions, which offered the lowest rates across the board. Seeing those low rates felt sort of like Christmas.

Refinancing requires much paperwork and correspondence. After the monthlong process, I felt like I was basically BFFs with my loan officer. I even kind of missed those weekly emails and calls when it was all over. What I did not miss, though, was the too-high car payment and the overwhelming sense of fiscal doom I associated with it.

The 2.49 Percent Solution

By switching from a Toyota Financial Services loan to a car loan with Tempe Schools Credit Union (now Landings Credit Union), I reduced my interest rate from 5.95 percent to 2.49 percent. I didn't add extra years onto my car loan payments, which many people do to reduce their monthly payment. Instead, my loan concludes at the same time it would have otherwise. My monthly payment went from $341 to $315, savings $26 a month or $312 a year. By reducing my interest rate and not adding more years to my loan, I saved myself nearly two grand.

Let's do some additional (and painful for me) math. What would my total savings look like if I'd financed with the credit union to begin with? At 2.49 percent versus the 5.95 percent, we're looking at a difference of $5,300 in finance charges versus $2,100, a savings of $3,200.

Refinancing my car was a lot of work -- and I wouldn't have had to do it if I'd been smarter to begin with -- but I learned a great deal going through the process. I also feel empowered knowing I won't ever make the same mistake again, and dang if it doesn't feel good to save.

For those who feel in over their head on their car loan, reach out to your local credit unions to see if it makes sense for you to refinance with one of them. There are some stipulations -- including your car's age and your income -- and your new interest rate will vary depending on your credit score, but all that paperwork is absolutely worth it if you can save several thousand dollars.

Personally, if I could do it all over again, I'd have financed with a credit union to the first time around. I also would have purchased a used car instead of a new one. Regardless, I'm glad I did something about the situation eventually, and that doing so saved me a decent chunk of change. For anyone reading this, I urge you to be smarter than I was when you finance your next car (or your current one) and really look at those APRs. A few percentage points can really add up over time.

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December 20 2015 at 12:14 AM Report abuse rate up rate down Reply

Is Wendy a moonlighting school teacher? Can't do math.

July 13 2014 at 10:31 AM Report abuse +1 rate up rate down Reply

Did anyone else notice that Wendy's special area of expertise seems to be writing articles on how to keep spending money for stuff that loses a big chunk of its' value as soon as it is purchased???? (Check out the list of her published DF articles at the end of this latest one.)

July 10 2014 at 4:13 PM Report abuse rate up rate down Reply

why not pay 3% for the loan, if you can make 15% on your money if you put it into a 401k? i wonder what else wendy doesn't know?

July 10 2014 at 2:44 PM Report abuse -2 rate up rate down Reply

I bought a new Ford truck at a Phoenix AZ dealership in 2006. At the time they had a 0% 60 month finance gimmick for those who qualified. With my 800 credit score I did not qualify. Solution - paid in full with no finance charges.

July 10 2014 at 1:24 PM Report abuse +1 rate up rate down Reply

Simple solution to save even more: DON'T BUY NEW! New cars are for suckers with more money than brains. Save the big hit on the first year's depreciation and buy a one or two year old car. It still has the remainder of the new car warranty, and you can get financing rates (if you must finance) that are as good as new cars. Pay it off as quickly as you can, take care of it, and eventually you will be driving free and clear with no car payments.

July 10 2014 at 11:40 AM Report abuse +3 rate up rate down Reply

so much drama for such an obvious solution...

July 10 2014 at 8:18 AM Report abuse -1 rate up rate down Reply