The pros and cons to refinancing your vehicle: Is it the right decision for you? Part Of Refinancing a Car Loan In this series Refinancing a Car Loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make better financial decisions by providing you with interactive tools and financial calculators that provide objective and unique content. We also allow you to conduct your own research and compare information at no cost – so that you can make sound financial decisions. Bankrate has partnerships with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are advertised on this site come from companies who pay us. This compensation could affect how and when products are featured on this website, for example, for example, the sequence in which they be listed within the categories of listing, except where prohibited by law. This applies to our mortgage or home equity products, as well as other products for home loans. This compensation, however, does not influence the content we publish or the reviews you read on this site. We do not cover the vast array of companies or financial offers that may be accessible to you. Westend61/Getty Images
4 min read . Published March 02, 2023
Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in understanding the ways and pitfalls of taking out loans to purchase cars. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are committed to helping readers gain the confidence to control their finances by providing precise, well-studied and well-researched data that breaks down otherwise complicated topics into bite-sized pieces. The Bankrate guarantee
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So, this compensation can impact how, where and when the products are listed within categories, with the exception of those it is prohibited by law for our mortgage or home equity products, as well as other home loan products. Other elements, like our own rules for our website and whether a product is available in your region or within your own personal credit score may also influence how and where products appear on this website. While we strive to provide a wide range offers, Bankrate does not include details about each credit or financial product or service. The cost of keeping your car on the road each month is a major challenge for many. Car payments have soared — an average monthly installment of $526 for used cars and $716 when you purchase new . A lot of people think about the possibility of replacing their current loan by getting a new loan — to make these costs more manageable. Refinancing could reduce your monthly payments depending on whether your circumstances have changed or market conditions have changed since you obtained your current loan. But refinancing is not without the risk of being costly in some instances. It is therefore important to think about the advantages and disadvantages of refinancing and analyze the financial circumstances of your situation in order to determine if it’s the right decision. Benefits of refinancing your vehicle The current car loan focus on saving you money. You might also be able to refinance for more than what you owe in case you require cash. Think about these factors when deciding whether refinancing is the right option for you. Lower interest rates. Your interest rate greatly affects your each month’s auto loan payment. This number is based on the credit rating of yours, as well as other things. If you’ve been since taking out your loan, which could be the case if your have made punctual loan payments and have handled your others debts, then it could be the perfect opportunity to look into refinancing. You will likely receive better terms and rates. Reduced monthly payments If you have difficulty making the monthly bills refinancing could help make your monthly payments less costly and make more money available within your budget. You can get an interest rate that is lower, a longer term or both. But although the signing off of a loan means you’ll save money each month, it will also mean a higher total cost as you’ll be paying more interest over the life of the loan. Make sure you pay off your loan faster Refinancing may be a way of paying off your loan earlier. If your income has increased since taking out your auto loan then it could be a good time to refinance to a shorter-term. If you pay off your loan in advance and pay off interest, you’ll save — assuming the lender’s fees don’t exceed the savings. However, if you prefer not to refinance, you could make larger monthly payments to lower the balance more quickly. This will accomplish the same goal and may reduce costs by avoiding costs of origination that could be associated with refinancing. Cash in quick time Some lenders offer this service, which is ideal if you need fast cash. It’s the same process as traditional refinancing, but instead of a new loan that is a replacement for your current one, you’ll be able to receive an unrestricted cash payment depending on the equity you have in your vehicle. While you may also secure more favorable loan terms or have a reduced monthly payment, this type of refinancing comes with the risk. If you take equity you’ve accrued in cash, it’s possible that you’ll become upside-down in your loan, owing more than what it’s worth. This can make it harder to make a profit should it’s your intention to market. Plus, you’ll take on more debt because your current auto loan balance will be greater. Cons of refinancing your car Pressing the by refinancing is not without risk. Take note of these drawbacks. High interest rates Refinancing also has the potential of more expensive interest rates. If your credit has dipped or interest rates have risen there is a chance that you’ll find interest rates higher than your current one. In the current economic climate high interest rates are not uncommon. Recent have driven interest rates up to record highs. Therefore, it’s in your best interest to look around for various options to stay clear of astronomically high interest rates or wait it out until market conditions improve. Additional charges If you’re in a tough financial situation be aware that refinancing a loan will incur additional costs. They could be applied to for prepayment, title transfer, prepayment and origination fees. Since these fees could add up, consider the amount the refinance will cost you and how the rate and duration compare to the current loan. The loan could become upside down if you refinance and extend your loan’s term, you are likely to end up paying more than the value of your car is worth. This is commonly described as being on the wrong side of your loan. What are the best ways to determine if refinancing your car is an excellent idea? The main factor to determining if it’s an appropriate choice is the amount of money you could potentially save. Weigh the pros and cons of taking advantage of an . Here are a few scenarios in which it might make sense to refinance your credit: Your credit has improved. When your score is better, you may get better rates and terms by refinancing. You received dealer financing. Typically, the terms offered through dealers are not the most beneficial. Consider other loan options if you have . It is impossible to make payments . Missing payments can result in charges, damaged credit, or worse: repossession of the vehicle. If you are unable to make your payments then refinancing could result in lower monthly payments. You are eligible for a higher interest rate. If rates are higher than when you initially applied, you could be eligible for an interest rate lower. However, this likely isn’t the case since the market rate isn’t declining because of recent Fed rate increase. If you’re looking to refinance your auto loan begin by looking at different lenders to find the best available rate. Many offer pre-qualification tools on their websites that allow users to see potential loan deals, as well as estimates of loan conditions including interest rates, terms and monthly payments, all without affecting the credit rating. You should consider getting pre-approved by more than three banks before you can apply for a loan with confidence. The next step is to, prior to looking for the best option, consider the benefits and disadvantages and how they will affect you in order to make an informed decision. Ideally, you want to save money, not simply stretching out your loan time. If you’re struggling financially it might be beneficial to to get an affordable monthly auto loan installment. Request the lender to or consider trading your car and selling the vehicle privately for the relief you need. If refinancing is the right choice for you, look for the best auto lender.
The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ways and pitfalls of borrowing money to purchase an automobile. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are dedicated to helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down otherwise complex topics into digestible chunks.
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