Rethinking loans is a must when it comes down to financial management. Refinancing a car can be an effective way to reduce your debt.
Is refinancing an auto loan a good idea? Before making a decision, think about a few things.
Refinance A Car Loan: The Advantages
Refinancing is designed to help you achieve financial success. Refinancing to another loan will bring you financial benefits.
1. Reduce Interest Rate
It is possible to obtain a loan opportunity at a lower interest. There are two ways you can do it:
- Take a look at your credit history. Should it have improved by at minimum 50 points since taking out a loan? Lenders might consider refinancing at a lower rate.
- You can shop around to find other lenders offering lower rates than you currently have.
Over the course of the loan, you’ll be able to save $816
2. Tapping Into Equity
Refinance allows you to tap into the equity you have already built up by paying off your car loan.
A cash-out car loan refinance allows you to repay the existing loan and borrow extra against the equity.
You might even be eligible for a lower interest on your new loan, while you still have the cash to meet your current needs.
3. Adjusting The Loan Term
Refinancing is an option that can reduce or increase the length of your auto loans.
- A lower interest rate can help you reduce the loan term but keep your monthly payments the same.
- Increase the term. If you have difficulty paying your monthly loan payments, you may be able to extend the loan term.
4. A New Lender
In certain cases, refinancing your auto loan may be possible. Some lenders may not provide the best customer service and this can frustrate the whole experience. It is possible to choose financial institution financing instead of dealer financing.
You should consider all costs before refinancing your vehicle for the purpose to change a lender.
Refinancing Car Loans: The Disadvantages
Refinancing might not always be financially sound. In some cases, you may end up spending more, or not saving enough.
1. Incurring Extra Costs
There are many costs associated with refinancing your auto loan.
- Lender fee
- Title fee
- Penalty (Your auto loan agreement may include a penalty that requires you to pay a fee to close your car early).
- Closing fees
2. Additional Interest
Additional interest will accrue if the refinance is for a longer period. While you may see your monthly payment decrease, you end up spending more in the long run.
3. Extension Of The Term
You can reduce your monthly loan payments by extending the term, but it will also increase your payment time. Your loan payment will take longer, while your car’s value continues to decline.
Refinance Car Loans When It Is A Good Idea
You might consider refinancing if your auto loan is:
- Your credit score improved – with a higher rating, you are eligible to receive a lower monthly interest rate.
- You may see a better offer from another lender.
- Have an emergency? If so, you may consider using a cashout refinance option.
- Life changes. If you can’t make your monthly payments, refinance might be an option.
You will not be approved for a refinance car loan if:
- Your car is 7 years or older
- More than the car’s current value is owed to you
Author Bio
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