Lenders cannot compete with automakers' incentive financing of 2% or even 0% on new vehicles. But when it comes to financing or refinancing a used vehicle, Tropical Financial Credit Union offers great advantages over showroom offers.
“When someone is purchasing a used auto at the dealer, their rate is not going to be 3.99%. It will be higher,” says Erick Padron, vice president of lending at Tropical Financial. “However, when they’re at the dealership in that high-pressure environment to sign and close the deal, they fall into the trap of accepting the dealer’s financing terms.”
“They later realize that they are paying an interest rate of 8%, 9%, or 10%. When a friend or relative tells them they can get a lower rate elsewhere, they begin shopping lenders.”
How soon should they start looking?
“The very next day after they take title to the vehicle,” Padron says. “As soon as they get the welcome letter from the other lender, we can go ahead and move forward with a refinance.”
When owners sit down with a Tropical Financial loan officer, they can explore numerous options, he says. Among them are:
- Shortening the term to get out of debt faster
- Extending the term to lower the monthly payment
- Applying with a down payment and refinancing for the remaining term with a lower payment
- Cashing out the equity on the vehicle
“A good percentage of our members make a down payment to reduce the monthly payments,” Padron says. “And the best time to do that is when you refinance the loan.”
What’s the best choice? It depends on the individual’s financial situation. The lower credit union rate will reduce the monthly payment. Here’s an example: Let’s say the dealer is lending $20,000 for 48 months at a 10% annual percentage rate. The monthly payment is $507.
Refinancing at Tropical Financial at 5%, subject to credit approval, would lower the payment to $461, a savings of $2,208 over the life of the loan.
If you make a down-payment of $1,000 on the refinanced loan, your monthly payment will plunge to $437, a total savings of $3,360.
Here’s the little secret to saving money that most people don’t know: “If there is equity on the car, the borrower can cash out 100% or 80% of the value of the car depending on the credit for it,” Padron says.
What can you do with the money? You can consolidate high-rate debt like that on most credit cards or purchase a needed household appliance like a refrigerator or washing machine.
“Let’s say the loan balance is $20,000 and the car’s value is $25,000,” Padron says. “They can cash out the $5,000 in equity.”
While all vehicles should depreciate with age, the car market is so strong that even used ones are holding or rising in value. The U.S. Dept. of Labor reported that used car and truck prices rose 2.2% in December. Cox Automotive, which is highly active in the used-vehicle market, reports that the average price of a 3-year-old vehicle has climbed 45% since 2020 from just under $20,000 to close to $30,000.
Refinancing a used car depends on several factors, such as the vehicle's age and condition and the borrower’s creditworthiness. For more information on car loans from Tropical Financial, contact a loan officer and see the credit union’s latest rates here. And mark your calendar for April 5-6, when Tropical Financial will be hosting a spring car sale with onsite financing.
