What is Loan Refinancing?

Loan refinancing can be done in a couple ways. One way is to refinance with your current lender – to review and change certain terms in your loan to make it more advantageous for you. The other option is to switch your current loan to the credit union.

By switching your current loan from another lender over to Eagle Community Credit Union, you’ll be able to possibly lower your current rate, extend or reduce your loan term and change other aspects of the loan, making it better fit your budget.

What Loans Can You Refinance?

• 1^st Mortgages
• Home Equity Loans
• Auto Loans
• Personal loans
• Student loans (that are not financed by the government, although you can refinance a federal student loan into a private loan)

Benefits to Refinancing

By refinancing your current loans, your goal is to save money, either monthly, long-term, or both.

Example #1 :: Saving Money by Extended Loan Terms

Assume you have a $25,000 car loan with a current interest rate of 3% and a loan term of 60 months. Your monthly payment would be $449.22.

If you refinance and extend the term to 72 months, your new monthly payment would be $379.84 (saving you $69.38 per month).

Example #2 :: Saving Money by Lowering Interest Rate

Assume you have a $30,000 car loan with a current interest rate of 4% and a loan term of 60 months. Your monthly payment would be $552.50, and the total interest you’d pay over the life of the loan would be $3,149.74.

If you refinance and lower your interest rate to 2%, your new monthly payment would be $525.83, and the total interest paid over the life of the loan would be $1,549.97 (saving you $26.67 per month and $1,599.77 in interest over the life of the loan).

When you sit down at the table and look at the amount of your loan payments, the money can add up significantly. You may find you are giving half or more of your income toward monthly loan repayments. By seeking out the refinancing route, you may find that you can save a substantial amount of money. You can then place these funds into an emergency or retirement account so you can build your personal wealth.

While refinancing loans is usually a beneficial move, especially if your credit score has increased since originally opening your loan or rates overall have declined, there are also some downsides to note.

Disadvantages of Loan Refinancing

There are some aspects of refinancing that can have a negative impact on your loan and your budget. If you extend the loan term out too far, you may become “upside-down” or “underwater” on your loan. This simply means you owe more than the item (i.e., home or car) is worth. This happens, for example, when your car depreciates in value over time, and you keep extending out the loan repayment period.

When refinancing loans, it’s important to work with an institution you trust, such as the credit union. We’ll advise you of these possible scenarios and prevent you from going this route.

We’re Here to Help!

Your current loans are likely your largest monthly expenses. But they are also the best place to look for the biggest monthly savings, and every loan is an opportunity to save. We’re ready to work with you one-on-one, review your loans at other institutions, and help you switch them to the credit union.

Simply stop by or give us a call at (949) 588-9400 to see how much you could save.

Each individual’s financial situation is unique and readers are encouraged to contact Eagle Community Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.