Refinancing Your Car Loan Reduces Monthly Bills and Creates Financial Flexibility for Drivers

In a Nutshell: If you’re looking to reduce your monthly expenses but haven’t had much success, maybe it’s time to consider exploring new opportunities. Caribou connects car owners with refinancing options that can give them more financial flexibility. It’s free to check whether refinancing through Caribou can help you.

It’s hard to imagine life in America without cars. Not only do we use them to travel all over the country, but automobiles are often the subject of popular songs and TV shows.

The Beach Boys wrote and sang several tunes about cars, including one about a little deuce coupe that was the fastest set of wheels in town. And the 1980s TV show “Knight Rider” featured a car in a co-starring role. Hmm, I wonder if my car can act?

But cars are more than just the subject of catchy surf rock or gripping crime dramas. Part of their appeal is what they represent to so many of us — freedom. Cars can take us from where we are to where we want to be, and, best of all, we drive them ourselves. Unlike a train, plane, or bus, a car can give us the power of choosing each moment of our journey. 

But buying and maintaining a car isn’t cheap. In addition to the actual costs of a car, drivers have to pay for auto insurance and fees associated with their vehicle’s registration and annual inspection.

Because cars are so expensive, most of us turn to lenders to help us purchase our vehicle. And, depending on our credit score, our auto loan could saddle us with an interest rate that leaves us struggling to make our monthly car payments. Fortunately, refinancing options may put us in a better financial spot.

Caribou is a company that helps car owners find refinancing options for their auto loans. We spoke with Eric Stradley, Caribou’s President, to learn more about how its services grant financial freedom to its customers.

Caribou started in 2017, and Stradley joined the company in 2019. He told us that car dealerships have an incentive to sell their customers loans with the highest interest rates they can, but Caribou can help them find better deals on car loans.

“Car dealerships are just doing the right thing for their business, but they follow a model that isn’t really set up to give an advantage to the person who has to pay the car note every month,” Stradley told us. “And cars are such a ubiquitous product — they’re probably one of the most important assets the American public owns. Why can’t automotive refinancing be as popular and widespread as mortgage refinancing?”

We always appreciate when a business looks out for the interests of its customers and doesn’t seek to maximize profits at all costs. Sure, movie theaters could probably make more money if they let children buy tickets to see the latest R-rated monster movie, but industry guidelines suggest those films aren’t appropriate for people under 17. 

Refinancing your auto loan is a smart financial move for many people, but it doesn’t make sense for everyone. If you have an auto loan with an enviable interest rate, then refinancing it likely isn’t the right decision for you.

“People with auto loans with low APRs might be in a position where they need some extra cash in their bank account every month, and they might want to take the 36 months they have left on their term and extend it by two years,” Stradley told us. “That might be the right solution for some, but it’s not the right solution for everybody. You could ultimately end up taking on more interest over the life of the loan in exchange for that monthly cash-flow relief.”

Caribou gathers all of its employees together each month to discuss strategy and share stories of how they’ve helped customers. In a recent meeting, they discussed how they connected a customer with a refinancing opportunity that saved them $124 on their monthly car payment and more than $8,000 over the life of the loan.

“Stories like that are fairly typical,” Stradely told us. “Multiple times this year we’ve saved a customer over $200 per month, and we had a customer earlier this year who saved $54,000 in total interest payments by taking his APR from over 18% to 5.7%.”

Stradley said it’s always a good time for borrowers to refinance their auto loan if their rate is higher than the average rate for borrowers with similar credit profiles.

If you’re not sure whether refinancing your auto loan is the right move for you, there’s no harm to your credit score to see if you can save through Caribou. Stradley told us the company’s process allows prospective customers to discover what’s right for them before they commit to refinancing and Caribou conducts a hard credit inquiry, which may affect your credit score.

Borrowers can enter personal information and details about their vehicle on Caribou’s website. The company will then pull data from national databases and look at your loan-to-value ratio, which assesses how much your car is worth compared to how much you owe on your car loan. Stradley told us Caribou will then show consumers the best refinancing options available to them.

The company partners with credit unions and community banks across the country to present lending options to borrowers.

“If you review what we provide you and decide that it’s the right fit for you, then we’ll get a firm offer of credit approval from one of our lenders we work with,” Stradley told us. “We’ve made it easy for customers to discover if they can save money with our prequalification process based on a soft credit pull, and that means no hard pull is required, which isn’t typical for all lenders. We make it easier on the end consumer who’s taken out that loan.”

Direct lenders provide funds to borrowers without the use of an intermediary. Caribou isn’t a direct lender — it connects consumers with financing opportunities. Most of the loans Caribou presents to customers have terms that range from 36 to 72 months, though it can connect borrowers with some loan terms extending as long as 84 months. 

Refinancing an auto loan isn’t as common as refinancing a mortgage. Stradley told us sometimes people contact the company just to figure out whether its services are legit.

“We allow people to keep the vehicle they own, but it becomes cheaper for them every month,” Stradley told us. “Some customers think that offer is too good to be true, so we have a customer support team that fields their questions and gives them confidence in our service. We also have a bunch of content we’re in the process of revamping that’s tailored toward those sorts of questions.”

People may be hesitant to refinance their auto loans because they know that refinancing a mortgage can be a time-consuming, involved process. But Stradley told us that borrowers can refinance their auto loan in as little as two days. 

Refinancing a car loan isn’t something most of us think about, and Caribou gets that. The company gears its marketing efforts toward helping people understand how simple refinancing their auto loan can be and how it can benefit them. 

“Only about 40% of people know that refinancing is a thing in the auto space compared to 80% who know about mortgage refinancing,” Stradley told us. “During the process you might have to print something out and mail it to us, but, for the most part, it’s completely digital. And you don’t have to pay anything upfront.”

We’ve all heard stories from older friends and relatives about the way things used to be. A common theme in these stories is often how life was once much more challenging, with one exception — the price of goods and services was cheaper in the past. That’s especially true now, as inflation has caused prices of almost everything to increase.

For people struggling to keep up with mounting bills and soaring prices, cutting costs can be an effective way to save money. Lowering your monthly car payment can provide you with significant financial relief.

“People are looking for ways to get extra pennies out of everything,” Stradley told us. “We hear people talk about how amazing it is that saving money on their car payments is allowing them to go on vacation with their families for the first time. You can get help to make this big piece of your life a little less expensive.”

Caribou serves customers with various types of vehicles, but it doesn’t usually provide refinancing options to drivers with high-end cars such as Ferraris or cars older than 13 years. Stradley said it’s not impossible for subprime borrowers to refinance their auto loan, but they won’t have as many choices as people with excellent credit scores.

Lenders often adjust interest rates in anticipation of upcoming Federal Reserve actions. But, regardless of the Fed’s moves, Stradley told us it doesn’t hurt to see whether Caribou can save you money.

“Even if we don’t have a great option for you right now, we’ll get in touch if we have one in the future,” Stradley told us. “If the Fed lowers rates, it’s likely you’ll be able to get a better deal on your loan. I’d encourage folks to check with us and see if that’s the case for them.”