Refinancing a car is replacing your current car loan with a new one — usually with a different lender, with new agreed-upon terms. People choose to do so for many reasons; most of them do it to save money.
It’s not surprising. A record of 107 million Americans have auto loan debt, and to help you save money over the length of your loan, pay off your debt faster, or reduce your payments, refinancing is the best solution in the market.
Refinancing seems easy and appealing at times, but to get better rates and keep your financial health on the right track, always dig deeper beyond the fine print and get your homework done.
To help you make your decision, we listed below the benefits of refinancing your auto loan:
Lower your interest rate.
The great thing about refinancing a car loan is you can reduce your interest rate. The auto loan interest rate can make a huge difference in your payment.
And the good news is there is a chance your credit score may have improved after a couple of years, enough to qualify you for a lower interest rate.
If your credit score has increased, you’ve gotten a raise at work, or loan interest rates have fallen, you can now get a better rate. By doing so, you can reduce the total interest charges you pay on your car loan.
And with a lower interest rate, you will be able to pay off your loan faster.
Change the length of your loan
You can also change your loan term lengths by refinancing. You can do this in two ways.
- Reducing the monthly payment in longer term
By extending the loan term, you can reduce the monthly payment needed to meet the total amount.
If you owe three more years on your current loan, it may be possible to refinance and extend the term to four years. It will lower your monthly payments and will give your monthly budget a room to breathe. It will free up some cash on a monthly basis,
But it also means you end up paying more for your car in total, including interest.
- Pay your loan sooner
You can also refinance a loan by shortening the term. If you’re trying to pay off debts or worry that the vehicle won’t last as long as the loan term, this might be the best option for you.
Of course, this means raising the monthly payment, but the total amount and the total interest will be significantly reduced.
Change your lender
Some lenders are notorious for hassling their customers. Now, you can get out of the deal by refinancing. Get yourself a lender that will give you a better rate and easy payment options.
There are many auto refinance lenders out there. Keep in mind that doing solid research on them is the best way to go. Check out this list of Best Auto Refinance Lenders of 2018 to help you compare your options.
When you regret not adding policies in the first place, you can have the option to add GAP or MBP policies once you refinance.
Remove or add someone as a co-signer
A new loan means a new contract. You can easily remove or add someone as a co-signer by refinancing your loan.
Wrapping it up…
If you decide to refinance your current auto loan, always take a closer look at your situations and choices.
If your credit score improves, the interest rates decrease, or if you are taken advantage in your current loan, you can easily correct those issues by refinancing your loans and getting better terms.