Tired of paying hefty monthly loan payments? Refinancing your car loan can offer relief. It is the process of acquiring a new auto loan to pay off the existing one with better terms.
But before you reach out to your lender, learn both sides of the argument. Let’s take a closer look:
Pros of Auto Loan Refinancing
The benefits of a refinance car loan include:
Lower Interest Rate
If your credit score has improved or the market rates have decreased since you acquired your first car loan, refinancing is a golden opportunity. You can enjoy a much lower interest rate and ensure noticeable savings.
Lower Monthly Payments
In addition to the interest rate, your monthly payments will also go down. This will lead to some breathing room in your budget, helping you pay for other expenses.
Reliable Lender
Acquiring an auto loan is difficult, which is why a lot of people end up choosing an unreliable lender. With refinancing, you have the opportunity to shop around and find a lender that has a transparent pricing structure and customer-centric approach.
Potential Cash Back
Some lenders, like RefiJet, offer a cash-out auto refinance loan. In simple terms, you can get cash from your vehicle’s equity. The amount of equity depends on your vehicle’s specifications, so it’s best to ask your lender beforehand.
Remove a Cosigner
Most first-time car loan lenders add a co-borrower with a good credit score to the agreement. Now that you have a stable income and your credit score has increased, removing the co-borrower is the right move. It will give you full ownership over the car once you’ve paid off the loan.
Cons of Car Refinancing
As much as we’d like it to be, car loan refinancing doesn’t come without some disadvantages. Here’s a closer look:
Additional Fees
Refinancing can incur a myriad of additional costs, such as filing fees, application fees, title transfer fees, and possibly early repayment penalties. All of these costs can put strain on your budget.
Do the math, and make sure you don’t pay more than what the car is worth.
Extended Repayment Period
Decreasing the monthly loan payments is a double-edged sword. You will get more room in your budget, but the repayment time period will increase. As a result, you will stay in debt for a longer time than expected.
Upside-down on Your Loan
Due to an extended repayment period, borrowers can end up paying more than the initial loan amount. This is called being upside-down or underwater on your loan.
Is Car Refinancing the Right Move?
Now that you’ve understood the pros and cons of refinancing a car loan, it’s natural to wonder, Is car refinancing the right move for me? The answer is: It depends.
If your credit score has improved and you’re in a more comfortable financial situation, refinancing can bring more relief. It can lower the interest rate and help you focus on other necessary expenses. Above all, refinancing allows you to partner with a new, more reliable lender and enjoy added benefits.