The Pros and Cons of Car Refinancing
Are you interested in refinancing your car loan? Are you wondering what could be the benefits and drawbacks of it? Let us help you be well-informed. Before we go through the Pros and Cons of Car Refinancing, let’s talk about what car refinancing is. Car loan refinancing is a helpful tool to reframe your financial situation. Whether you’re looking to buy another car or want to change something about your current loan, refinancing is one way to do it. However, it isn’t a one-size fits all solution. We’ll outline the basics of car refinancing so you can make a more informed decision about whether it’s right for you.
What Does It Mean to Refinance a Car?
Car refinancing means taking out a new car loan to pay an existing car loan. Depending on what you qualify for, it can help you reduce interest rates, lower your monthly payments, and pay off the debt more quickly.
How Does Car Refinancing Work?
The process of car refinancing is pretty straightforward. It works similarly to the original purchase. But, unlike haggling about the value of the vehicle. You are locked into the cost associated with the original purchase. Essentially, the new lender buys your debt (pays for the car’s remaining value) and then loans you the money. Typically at a lower rate and with an improved term.
The Pros and Cons of Car Refinancing
Will refinancing your car loan brings you closer to your financial goals? Here are some pros and cons to consider as you weigh your options.
Pros of Car Refinancing
You could get a better interest rate.
If you had poor or no credit when you bought your car and your credit has since improved, you could qualify for a lower interest rate. Interest rates can make a difference in your monthly payment amount and the total interest you pay over the life of the loan. If your current loan interest rate is higher than the rates you can qualify for, consider car refinance then. Lowering your payment by a percentage point or two can save you money in the long run.
You can lower your monthly payments.
Refinancing can reduce a monthly car payment that is too large for your budget. Depending on your current loan terms, and the new loan’s details, you may owe less each month. Refinancing can help reduce your monthly car payment in a couple of ways. First. If you secure a lower interest rate. Your monthly payments could be lower. Second, you may be able to extend the term of your loan. Lengthening the life of the loan by 1-2 years can significantly lower your monthly payment.
However, going with a longer term can be a negative since you’ll most likely pay more interest over the life of the loan. On the other hand, it can be a positive if it prevents you from falling behind on payments.
You can get extra cash.
If you currently owe less than what your vehicle is worth, you may be able to access more cash by refinancing. When you refinance a car loan, you can apply for more than what you owe on the car. The extra cash can then be used to cover any other expenses.
You can pay your loan off earlier.
Refinancing your car loan can also help you pay off your loan early. Due for two reasons; one, the lower interest rate means more of your payment is going towards the principal. And two, you can opt for a shorter term.
You can consolidate debt.
If you have car loans for more than one vehicle, refinancing can be a great way to consolidate that debt. By taking out a new loan that covers the amount of all of your current auto loans, you’ll be able to streamline your payments. That makes loan management much more manageable.
You can get customized terms and conditions.
Refinancing your car loan allows you to opt for a loan that is a better match for your current circumstances. For instance, you can remove or add a co-signer or choose an option that allows early repayments.
Cons of Car Refinancing
You could end up paying more interest.
Depending on the reason you are refinancing in the first place. You could pay higher interest costs than what you have on your current loan, even if the rate is lower, specifically if you extend your loan term. However, paying extra interest over time may be worth the convenience of lower monthly payments. It all depends on what makes sense for your financial situation. You can pre-approve for car refinancing here and use our auto loan calculator. To help you determine if you will save enough money and if it’s a good choice.
You might have to pay refinancing fees.
Signing up for any loan often comes with a few fees, and car refinancing is no different. These could include lender fees, title fees, closing fees, and penalties for closing your original loan early. However, not all lenders charge the same fees, and some may not charge any at all. Therefore, weigh all the factors in car refinancing and ask yourself if it is worth it with all these associated costs.
You could be on an upside-down loan.
Car refinancing to extend your term or taking cash out of your equity could leave you owing more than what your car is worth, referred to as being upside-down on your loan. If you factor in the depreciation, your new loan can become excessively costly.
When does car refinancing make sense?
You have improved your credit score. Most Canadian lenders charge interest rates based on individual credit scores. If your credit score has improved, you might get a lower rate.
You need lower monthly payments. Refinancing a car loan may be your ticket to a more affordable car payment, with or without a lower interest rate. If you’re paying double-digit rates on your car loan and your budget is tight. You could refinance your loan to a longer repayment term. But expect to pay more in interest because you are extending the loan.
You can get a better deal. Car refinancing only makes sense if you can get a better deal overall. Hence, pay attention to new interest rates and term length. Your refinancing should make your life easier, not harder.
You have an emergency. Refinancing your car loan may help you gain access to cash. This involves refinancing an amount more than what you owe on the car. It is also known as cash-out refinancing.
Refinance your car loan with Vancouver Auto Loan!
Have you made up your mind and want to refinance your car loan? Vancouver Auto Loan can help you secure a better loan agreement on your current vehicle. If you want to know if you qualify for car refinancing, apply here today. We can get you pre-approved within the day. Regardless of your credit rating, we have options for you. Call us here at 1-855-227-1669 for more information and urgent assistance. We’ll be glad to serve you every step of the way.