Like anything else that has to do with an auto loan, refinancing has its pros and cons. Before jumping into a decision like this, you need to carefully look at the benefits and consequences of refinancing your car loan.
The Benefits of Refinancing
There are a few things you can gain by refinancing an auto loan: more money in your pocket every month, for one. There's also, more money in your pocket in the long run, and, well, that's about it for the benefits of refinancing your car loan. Saving money is a big benefit – one that most people wouldn't think twice about accepting.
But maybe you should.
What Happens When You Refinance a Car Loan?
When you refinance your auto loan, you're replacing the existing contract on your vehicle with a new one. Typically, this is done with a new lender, but it's a good idea to check if you can refinance with your same bank or lender first – especially if you have a good relationship with them and/or your account is in good standing.
The only real advantage of refinancing is a lower monthly payment. The most common ways to accomplish this in refinancing a car loan are:
- Extending your loan term – Making the loan term longer brings down your monthly payment. Be careful, though, as longer loan terms, especially if the interest rate is the same, mean higher interest charges. So, even if it seems like you're saving money with a smaller payment, you end up paying more in the long run.
- A lower interest rate – If your credit has improved since you first took out your loan, you may be eligible for a lower interest rate. A lower interest rate helps you save money in the long run because you pay less in interest charges. Qualifying for a lower interest rate can help you pay off your loan earlier and save money over the term of your loan.
Keep in mind that it's not always possible to refinance a car. All lenders have qualifications that have to be met pertaining to the details of the loan and the vehicle's equity, age, mileage, and condition. Even the type of car can influence the auto loan refinance requirements. Make sure you weigh the pros and cons before you decide to go for it.
The Consequences of Refinancing
Even though a lower loan payment can make it feel like you're saving money, you need to look at the overall cost of the loan. Done incorrectly, refinancing can result in you paying more than you bargained for to get that low monthly payment. Worse yet, it could result in negative equity, meaning you owe more on the loan than your vehicle is worth. This can put you in a tight spot if you want to sell or trade it in for a newer model, or it's totaled or stolen.
Before you start the refinancing process, make sure you rate shop lenders to get the best deal you can, and avoid signing for a loan term that's too long. Using a loan calculator can help you make sure you're getting a fair deal.
Need a Car Loan?
If you're stuck in an auto loan that's not working for you, Auto Credit Express wants to help. While we aren't lenders and can't refinance your loan, we do work with an extensive network of special finance dealerships with the lenders available to help people in all kinds of credit situations. So, if you're looking for a better deal on your next car loan, skip all the driving around town and let us connect you to a local dealer now! All you have to do is fill out our easy, no-obligation auto loan request form today.