Refinancing your car loan means taking out a new auto loan in order to pay off the one you already have—but what happens when you refinance a car? Is it something everyone should do, or will it worsen your financial situation? When you refinance your car, you can get better terms on your car loan and save money over time, but there are some important things to think about before you decide to refinance your car loan. Let’s take a look at how auto refinancing works and how it could help or hurt your finances long-term.
1. How Does Refinancing a Car Work?
If you’re looking to get a lower interest rate on your auto loan, or if you’re trying to consolidate debt, it can be tempting to refinance a car with another lender. To refinance your auto loan, all you have to do is pick up the phone and call your existing bank. If they don’t offer refinancing options, they can help direct you to a lender that does.
The best time to refinance your auto loan depends on a number of factors. Depending on these factors, you may be able to get lower monthly payments or a shorter loan term. So is it possible to refinance a car loan with bad credit? Yes, but it will depend on many factors. They include both personal and financial circumstances that would make a creditor more likely to want to take another chance on your finances.
2. When should you consider refinancing your car?
Many consumers refinance their car loans without a clear reason for doing so. Knowing when you should refinance your auto loan can help you make an informed decision about whether or not it is right for you. Some lenders look for a FICO score of 680 or higher. Anything below that might get you denied. If your score is closer to 600, you should check out alternative auto loans before you refinance. Don’t make a quick decision unless you know what will happen. Stay safe.
The Automotive Finance Experts at Lantern by SoFi break down what you need to do before and after you decide to refinance a car loan. They also tell us how often Americans are refinancing their auto loans as an alternative or in addition to buying new cars. While most people understand that they will have monthly payments for 3-6 years when they buy a car, many don’t know about car loan options like interest-only payments and biweekly payments.
Also, Read: What is TUTFLIX? Know Everything About Tutflix.org
3. Pros and Cons of Refinancing a Car Loan
The term of your auto loan determines how long you’ll be making payments on your car. Lengthening or shortening your term can save you money, but it can also come with some other consequences.
Pros:
• Save on interest
• Reschedule your monthly payment
• Consolidate two or more loans
• Get cash for other financial needs
• Lower your rate
• Change to a lower, fixed-rate
• Change from variable to fixed rate
Cons:
• Your interest rate and payment could increase
While a refinance can lead to lower payments, your current terms might include certain benefits that are lost once you enter into a new loan contract with a new lender. For example, if you have an auto loan with your employer-provided credit union, your car might be fully insured through work or included in a program that allows you to select a special warranty; depending on your current deal, some of these perks may not transfer to your new loan.
It’s easy to talk yourself out of refinancing, especially if you don’t have enough money saved up for a down payment. But it may still be worth exploring what financing options are available to you. According to Lantern by SoFi, “If your credit score isn’t very high, refinancing with a co-signer could also help you pay less in interest.”
Many things happen when you refinance a car. Depending on your situation, it can be one of three things: good, bad, or neutral. Be sure to learn all of these options before making a decision, and if you need help, talk to someone with experience in financing vehicles.
Also, Read: What are the Advantages and Disadvantages of Bottled and Jarred Packaged Goods?
