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 aim is to assist you make smarter financial decisions by providing you with interactive financial calculators and tools 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 financial decisions with confidence. Bankrate has partnerships 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 site come from companies that compensate us. This compensation may impact how and where products appear on this website, for example, for example, the order in which they be listed within the categories of listing in the event that they are not permitted by law. Our mortgage or home equity products, as well as other products for home loans. But this compensation does not influence the content we publish or the reviews that appear on this website. We do not cover the vast array of companies or financial offerings that could be open 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 specializes in assisting readers in understanding the ways and pitfalls of borrowing money to purchase an automobile. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to manage their finances through providing concise, well-studied information that breaks down otherwise complex topics into manageable bites. The Bankrate promises
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So, this compensation can impact how, where and in what order products appear in listing categories, except where it is prohibited by law for our mortgage home equity, mortgage and other home loan products. Other factors, such as our own rules for our website and whether or not a product is available in the area you reside in or is within your self-selected credit score range can also impact the manner in which products are featured on this site. While we strive to provide the most diverse selection of products, Bankrate does not include the details of every credit or financial product or service. It is expensive to keep your car on the road each month is a challenge for many. Monthly payments on cars have increased dramatically — an average monthly payment of $526 for used cars and $716 if you buy new . Many consumers consider the possibility of replacing their current loan with a new one — in order to make these costs less burdensome. Refinancing may reduce your monthly payment if your circumstances have shifted or the market has improved since you took out the current loan. However, refinancing comes with risks and could be expensive in certain instances. So, it’s best to think about the advantages and disadvantages of refinancing and assess your financial situation to decide if it’s a wise decision. The advantages of refinancing your car The current car loan center around saving cash. You might also be able to refinance more than what you owe in case you require cash. Consider these when determining if refinancing is right for you. Lower interest rates The rate of interest greatly affects your each month’s automobile loan payment. This is based on the credit rating of yours, in addition to other things. If you’ve been since taking out your loan, which could be the case if you’ve been making timely loan payments and responsibly managed your various debts. It might be a great time to consider refinancing your options. You will likely receive higher rates and terms that are more appealing. Pay less monthly if you have difficulty making your monthly payments Refinancing your mortgage can make your monthly payment less expensive and help you free up cash within your budget. You can get a lower rate, a longer term or both. But although the signing off of a loan means you’ll save money each month, it can also result in a higher total cost as you’ll pay more in interest over the life that of the loan. Pay off your loan faster Refinancing may result in having to pay off your loan earlier. If your income has grown since taking out your auto loan this could be a good idea to switch to a more short-term loan. If you pay off your loan in advance, you’ll save on interest — assuming the lender’s doesn’t outweigh your savings. But if you’d prefer not to refinance, you could make larger monthly payments to lower the balance more quickly. The same goals will be achieved and could reduce costs by avoiding origination fees that may accompany refinancing. Get cash fast Some lenders provide it , which can be beneficial for those who require cash fast. It works the same as traditional refinancing, however in addition to a new loan that replaces your current loan, you’ll receive an unrestricted cash payment dependent on the equity in your vehicle. While you may also secure better loan terms or have a reduced monthly payment This type of refinancing does not come without risks. If you take equity you’ve built up in cash, it’s possible that you’ll become upside-down in your loan and owe more than it’s worth. This makes it more challenging to make a profit should it’s your intention to market. Additionally, you’ll incur more debt because your outstanding auto loan amount will be greater. The disadvantages of refinancing your vehicle Pressing the by refinancing is not without risk. Be aware of the disadvantages. A high interest rate when refinancing has the potential of higher interest rates. If your credit has dipped or interest rates have gone up it is possible that you will find interest rates higher than the current rate. In the current market high interest rates aren’t uncommon. Recent developments have driven interest rates up to new records. Therefore, it’s in your best interest to explore different options to stay clear of astronomically high interest rates, or just wait until the market conditions improve. Additional charges If you’re in a tough financial situation be aware that refinancing a loan will incur additional costs. The costs could include application and prepayment, title transfer and origination fees. Because the fees are likely to add up, you should calculate how much the refinance costs you and how the rate and term compare to the current loan. It could be upside down if you refinance the term of your loan in any way, you’re likely to end up paying more than the value of your car is worth. This is often described as being on the wrong side of your loan. What are the best ways to determine whether refinancing your car an excellent idea? The main factor to determining if is a good idea comes down to the amount you could save. Consider the 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 improved. When your score is better, you could be offered better rates and terms by refinancing. You received dealer financing. Typically, the terms offered through dealerships are not the most favorable. Look into other lending options in case you are currently . It is impossible to make payments . Failure to pay can lead to fees, damaged credit or worse, taking possession of your vehicle. If you are unable to make your payments, refinancing may get you lower monthly payments. You qualify for a better interest rate. If rates are higher than they were when you first applied, you may qualify for a lower interest rate. However, this likely isn’t the case as the market rate isn’t trending downward due to recent Fed rate increase. If you’re considering refinancing your auto loan begin by looking at different lenders to find the lowest rate. Many offer pre-qualification tools on their websites that allow you to view potential loan offers, which include estimates of loan terms including interest rates, terms and monthly payments, all without impacting the credit rating. It is recommended to get pre-approved with at least three lenders, so you can make a formal application with confidence. The next step is to, prior to looking for , weigh the advantages and disadvantages of each and the way they apply to you to make an informed choice. In the ideal scenario, you would like to save money instead of simply extending the loan term. If you’re having financial difficulties, it may be sensible to to get a more affordable monthly auto loan installment. Request the lender to trade your car in as well as selling privately to get the relief you need. If refinancing is the best option 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 has a specialization in helping readers with the ins and outs of securely borrowing money to purchase cars. Edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since the end of 2021. They are committed to helping readers gain confidence to control their finances with clear, well-researched information that breaks down complicated topics into manageable bites.
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