Pros and cons of 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 mission is to help you make better financial decisions by offering interactive tools and financial calculators that provide objective and unique content. We also allow you to conduct research and compare information at no cost to help you make informed financial decisions. Bankrate has agreements with issuers, including but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The products that appear on this website are provided by companies that pay us. This compensation could affect how and where products appear on this website, for example the order in which they may appear within the listing categories in the event that they are not permitted by law for our mortgage or home equity products, as well as other products for home loans. This compensation, however, does affect the information we publish, or the reviews you read on this site. We do not contain the entire universe of businesses or financial deals that might be available to you. Westend61/Getty Images
4 min read Published March 02, 2023
Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in understanding the details of borrowing money to buy a car. Edited 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 confidence to take control of their finances with concise, well-studied information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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Therefore, this compensation may impact how, where and in what order the products are listed within categories, unless prohibited by law for our mortgage, home equity and other products for home loans. Other factors, like our own website rules and whether a product is offered in your region or within your own personal credit score can also impact the way and place products are listed on this site. While we strive to provide the most diverse selection of products, Bankrate does not include information about each credit or financial product or service. The cost of keeping your vehicle on the road every month can be a burden for many. The monthly payments for cars have gone up with an average monthly payment of $526 for vehicles that are used and $716 if you buy new . A lot of people think about the possibility of replacing their current loan by getting a new loan in order to make the expenses more manageable. Refinancing could lower your monthly payments in the event that your situation has changed or market conditions have improved since you borrowed the current loan. However, refinancing does not come without the risk of being costly in some instances. Therefore, you should think about the advantages and disadvantages of refinancing, and evaluate your finances to determine if it’s the right decision. Pros of refinancing your car The your current auto loan focus on saving you cash. You might also be able to refinance for more than you owe if you need cash. Consider these when determining if refinancing is right for you. Lower interest rates. Your interest rate greatly affects the each month’s car loan payment. The amount you pay is determined by the credit rating of yours, among other factors. If you’ve taken out your loan, which could be the case if you’ve been making punctual loan payments and have managed your other debts, it could be the perfect time to consider refinancing your options. You will likely receive more favorable terms and rates. Lower monthly payments If you have difficulty making the monthly bills Refinancing your mortgage can help make your monthly payments less costly and let you free up money to your budget. You can choose an interest rate that is lower and a longer duration or both. But although taking a decision to sign off on a loan is a way you’ll save money every month, it can also result in more cost overall as you’ll pay more in interest over the duration of your loan. You should pay off your loan faster Refinancing may also lead to the repayment of your loan early. If your earnings have increased following the purchase of your auto loan this could be a good idea to switch to a shorter term. If you settle your loan in advance you’ll save money on interest — assuming the lender’s interest doesn’t exceed the savings. However, if you prefer not to refinance, you could pay more in monthly installments to reduce your balance quicker. The same goals will be achieved and save money by avoiding the costs of origination that could be associated with refinancing. Cash in quick time Some lenders provide it this service, which is ideal for those who require cash fast. It’s similar to traditional refinancing, however in addition to getting a new loan which replaces your existing one, you’ll also receive an unrestricted cash payment based on the equity in your vehicle. In addition, you could get better loan terms or a lower monthly payment, this type of refinancing does not come without the risk. In the event that you pull out the capital you’ve accumulated in cash, it’s possible that you’ll become upside-down in your loan and owe more than it’s worth. This makes it difficult to earn a profit when it’s your intention to market. Additionally, you’ll incur more debt because the outstanding auto loan amount will be greater. Pros and cons of refinancing your automobile The process of refinancing not without risks. Consider these disadvantages. High interest rates Refinancing also has the potential of greater interest rates. If your credit score has declined or interest rates have risen there is a chance that you’ll find interest rates higher than the current rate. In the current market high interest rates are not uncommon. Recent developments have led to interest rates reaching record highs. Therefore, it’s recommended that you explore different alternatives to try to avoid sky-high interest rates, or just wait 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 and prepayment, title transfer and origination charges. Because the fees can add up, calculate the amount the refinance costs you and how the rate and term compare to the current loan. The loan could become upside down if you refinance and extend your loan’s term and you’re likely to end up having to pay more than the vehicle’s worth. This is often called being in default on your loan. What are the best ways to determine if refinancing your car is a good idea The key to determining if it’s an appropriate choice comes down to the amount of money you could potentially save. Be sure to weigh your pros and cons before using the benefit of a . Here are some scenarios where it may be beneficial to refinance your credit: Your credit has is improving. If your credit score has improved, you may receive more favorable terms and rates through refinancing. You received dealer financing. The terms typically offered through dealers are not the most favorable. Look into other lending options if you currently have . There is no way to pay . Failure to pay can lead to penalties, credit damage or worse, taking possession of your vehicle. If you cannot make payments and refinancing might result in a lower monthly payment. You qualify for a better interest rate. If the market rate is better than when you first made an application, you might be eligible for an interest rate lower. But, that’s not likely to be the case because market rates aren’t currently declining due to recent Fed rate increases. If you’re considering refinancing your auto loan Begin by shopping for lenders across the market to find the lowest rate. A lot of them have pre-qualification tools available on their websites that allow users to see possible loan deals, as well as estimates of loan terms including interest rates, terms and monthly payments, all without impacting the credit rating. Consider getting pre-approved with minimum three different lenders before you can apply for a loan with confidence. Next steps Before looking for , weigh the advantages and disadvantages, and consider how they apply to you to make an informed decision. Ideally, you’d like to save money, not simply prolonging your loan duration. If you’re struggling financially you might want to opt for a more affordable monthly auto loan payment. Request the lender to or consider trading your vehicle in and selling the vehicle privately to get the financial relief you require. However, if refinancing seems like the right choice for you, then look for the most suitable auto lender.
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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ways and pitfalls of taking out loans to buy an automobile. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain confidence to take control of their finances through providing clear, well-researched information that break down complex topics into manageable bites.
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