Why did I refinance my car loans today

I will explain my entire thought process behind the decision to refinance my cars. I will start by telling you the reasons why I refinanced and everything that was going on in my mind while I was talking to the credit union for an hour.


I bought both the cars  (a Mercedes and a Ford) in 2013. I financed both of them with the manufacturer’s preferred financial institutions because both of them gave me an incentive via a discount on the purchase price.

I had very limited credit history (just one credit card and nothing else, that too was just about 2 years old). The rates that I received were upwards of 9% for one car and upwards of 6% on the other.

Soon afterwards, I refinanced both the car loans with my local credit union. With the exact same credit history (limited), I was able to get an interest rate of 3.89%. They dropped it a quarter point further (0.25% or 25 basis points) because I agreed to take a credit card (this was my second credit card ever).

I made all the payments on time for these 2.5 years. As expected my credit score improved tremendously.

Why did I decide to refinance today

  1. Interest rate of 3.64% was too high. I knew I will get the best rate (or very close) available given my very good credit history now.
  2. I wanted cash out of my ‘equity in the car’ – more on that later in this post
  3. I do not foresee any large purchase on credit coming up soon (like a mortgage), so a little temporary drop in the credit score (by an additional inquiry today) does not bother me.

Here is how the process went

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