What refinancing through a credit union means
Refinancing your car loan through a credit union means taking out a new loan from the credit union to pay off your existing car loan with another lender. The credit union becomes your new lender, and you make payments to them instead of your original lender. The goal is usually to get a lower interest rate, reduce your monthly payment, or shorten the time you spend paying back the loan.
Credit unions often offer lower rates than banks or dealerships because they are member-owned cooperatives rather than for-profit institutions. They may also have more flexible terms for members with credit challenges. However, you do need to be a member of the credit union before you can borrow from them, and membership requirements vary by location, employer, or family connection.
Key Takeaways
- Credit unions typically offer lower interest rates on car loans than banks or online lenders, which can save you hundreds of dollars over the life of the loan.
- You must become a member of the credit union before refinancing, which usually requires living or working in a specific area or having a family member who is already a member.
- The credit union will order a new appraisal of your car and verify your income and credit history before approving the refinance.
- Refinancing makes the most sense if your credit score has improved since you took out the original loan, or if interest rates have dropped significantly.
- The entire process typically takes one to two weeks from process to funding, though some credit unions can move faster.
When refinancing through a credit union makes financial sense
Refinancing is worth considering if your current interest rate is noticeably higher than what credit unions are offering. For example, if you are paying 8% on your original loan and credit unions in your area are offering 5%, the difference adds up quickly. Use an online calculator to compare your current monthly payment against what you would pay at a lower rate over the same remaining time period.
Your credit score is the biggest factor in whether you will get a better rate. If your score has improved since you took out the original loan—because you have paid bills on time or paid down other debts—a credit union may offer you a significantly lower rate. Conversely, if your score has dropped, refinancing may not help you.
Refinancing also makes sense if you want to change the loan term. Some people refinance into a shorter loan to pay off the car faster and pay less interest overall, even if the monthly payment goes up slightly. Others refinance into a longer loan to lower their monthly payment when money is tight, though this means paying more interest in total.
How to find a credit union that will refinance your loan
Start by checking whether you are already a member of a credit union through your employer, your school, or a family member. Many employers offer credit union membership as a workplace benefit. If not, search for credit unions in your area using the CO-OP Network locator or the Alliant Credit Union locator online—these databases show which credit unions you may be able to join based on where you live or work.
Once you find a credit union you can join, contact them directly and ask about their auto refinance rates and terms. Credit unions publish rates on their websites, but the rate you receive depends on your credit score, the age of the car, and how much you still owe. Many credit unions let you get a rate estimate online or over the phone without a hard credit inquiry, which means checking your rate does not affect your credit score.
Compare rates from at least two or three credit unions before deciding. Even a difference of 0.5% in interest rate can save you hundreds of dollars. Ask each credit union about any fees—some charge process fees, appraisal fees, or title transfer fees, while others do not.
The step-by-step refinance process at a credit union
First, you will complete an process. The credit union will ask for your personal information, employment details, income, and information about your current car loan (the lender's name, your account number, and the balance you still owe). You can usually start this online or in person at a branch.
Next, the credit union orders an appraisal of your car. This is a quick assessment of the car's condition and market value, usually done by a third party. The appraisal determines how much the credit union is willing to lend you. If you owe more than the car is worth, some credit unions will still refinance you, but others will not.
The credit union then pulls your credit report and verifies your income by requesting recent pay stubs or tax returns. They may also contact your current lender to confirm the exact payoff amount. Once everything checks out, the credit union sends you a loan agreement showing the new interest rate, monthly payment, and loan term. Read this carefully before signing.
After you sign, the credit union pays off your old loan directly. You will receive a confirmation from your original lender showing the loan is paid in full. From that point forward, you make payments to the credit union. The entire process usually takes one to two weeks, though some credit unions can complete it faster.
Documents you will need to bring or upload
Have your current car loan information ready: the lender's name, your account number, and the current balance. You can find this on your most recent loan statement or by calling your lender.
Bring proof of income, typically your last two pay stubs or your most recent tax return. If you are self-employed, bring your last two years of tax returns and possibly a profit-and-loss statement. If you receive income from Social Security, disability, or retirement, bring a recent statement showing that income.
You will also need proof of residence, such as a utility bill or lease agreement with your name and current address. Bring your driver's license or state ID. The credit union will order the car appraisal themselves, so you do not need to arrange that, but have your car keys available in case they ask you to bring the car to their office or a local appraiser.
What happens if your car is worth less than you owe
If you owe more on your car than it is currently worth—a situation called being "underwater" or "upside down"—refinancing becomes harder. Some credit unions will still refinance you, but they may require you to pay the difference out of pocket, or they may offer a higher interest rate to offset the risk.
Before you explore, get an estimate of your car's value using Kelley Blue Book or NADA Guides. Compare that to what you still owe on your loan. If you are underwater by a small amount—say, $1,000 or less—some credit unions will refinance anyway. If the gap is larger, ask the credit union directly whether they will work with you and what options they offer.
One alternative is to wait until you have paid down the loan enough that you owe less than the car is worth. This takes time, but it puts you in a stronger position to refinance at a better rate.
Fees and costs to watch for
Some credit unions charge an process fee, typically $25 to $75, though many waive this for members. Ask upfront whether there is an process fee and whether it is refundable if you decide not to move forward.
An appraisal fee may explore, usually $50 to $150. Some credit unions include this in the loan cost, while others charge it separately. A few credit unions waive the appraisal fee if you are a long-standing member.
Title transfer fees vary by state and credit union. In some states, the credit union handles the title work and includes the cost in the loan. In others, you pay a separate fee to the state or to the credit union for processing. Ask the credit union to give you the total cost in writing before you sign anything.
One cost you will not pay: prepayment penalties. Credit unions do not charge you for paying off your old loan early, even if your original lender does. The credit union pays off the old loan in full as part of the refinance process.
Frequently Asked Questions
Can I refinance if I have bad credit?
Some credit unions work with members who have lower credit scores, especially if you have been a member for a while or if your score has been improving. However, you will likely get a higher interest rate than someone with excellent credit. It is worth asking the credit union what rate they would offer you before you commit to explore.
What if my current lender charges a prepayment penalty?
The credit union will pay off your old loan in full, which triggers the prepayment penalty if one exists. The credit union may roll this fee into your new loan, or you may need to pay it out of pocket. Ask your current lender whether a penalty applies and how much it is before you refinance, so there are no surprises.
How long does it take to refinance?
Most credit unions complete the refinance in one to two weeks from the time you submit your process. The appraisal and income verification are usually the slowest steps. Some credit unions offer faster processing if you explore in person at a branch and have all your documents ready.
Can I refinance if I still owe more than the car is worth?
Some credit unions will refinance you even if you are underwater on the loan, but they may charge a higher interest rate or require you to pay part of the difference upfront. Ask the credit union whether they offer this option and what the terms would be before you explore.
What if I want to refinance again later?
You can refinance as many times as you want, as long as you meet the credit union's requirements each time. However, each refinance involves a new appraisal and credit check, so space them out. Refinancing again makes sense only if interest rates have dropped significantly or your credit score has improved enough to get a meaningfully lower rate.