Refinancing pros and cons a car: is it the right choice 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 smarter financial decisions by offering interactive financial calculators and tools that provide objective and unique content. This allows you to conduct research and compare data for free and help you make sound financial decisions. Bankrate has partnerships with issuers such as, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site come from companies that compensate us. This compensation can affect the way and when products are featured on this site, including the order in which they be listed within the categories of listing and other categories, unless prohibited by law. This applies to our mortgage or home equity products, as well as other home loan products. But this compensation does not influence the information we provide, or the reviews appear on this website. We do not contain the vast array of companies or financial deals that might be available to you. Westend61/Getty Images
4 min read . Published March 02, 2023.
Written by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the details of borrowing money to purchase an automobile. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain the confidence to control their finances by providing clear, well-researched information that breaks down complicated topics into bite-sized pieces. The Bankrate promise
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Therefore, this compensation may influence the manner, place and when products appear in listing categories, with the exception of those it is prohibited by law for our mortgage, home equity and other home loan products. Other factors, like our own rules for our website and whether the product is available in the area you reside in or is within your self-selected credit score range could also affect the manner in which products are featured on this site. While we strive to provide a wide range offers, Bankrate does not include the details of every credit or financial item or product. The cost of keeping your car in the garage each month is a major challenge for many. Car payments have increased dramatically with an average monthly payment of $526 for used vehicles and $716 if you buy new . A lot of people think about either replacing or refinancing their current loan by getting a new loan — to make these expenses more manageable. Refinancing could reduce your monthly payment if your circumstances have shifted or market conditions have changed since you obtained your current loan. But refinancing is not without the risk of being expensive in certain instances. Therefore, you should look at the pros and cons of refinancing, and evaluate your finances to determine if it’s a smart move. The advantages of refinancing your car The current car loan focus on saving you money. You might also be able to refinance more than you owe if you need cash. Consider these when determining if refinancing is right for you. Lower interest rates The rate of interest significantly impacts your every month automobile loan payment. This is based on the credit rating of yours, as well as other factors. If you’ve taken out your loan and you’re not sure, this could be the case if your have made punctual loan payments and have handled your various debts. It could be a great time to explore refinancing options. It is likely that you will receive better terms and rates. Reduced monthly payments If you struggle to meet your monthly payments refinancing could make your monthly installments more affordable and let you free up money in your budget. You can get a lower rate, a longer term or both. However, while the signing off of a loan means you’ll save money each month, it can also result in more cost overall as you’ll pay more in interest over the life that of the loan. Make sure you pay off your loan sooner Refinancing can be a way of paying off your loan early. If your earnings have increased following the purchase of your auto loan, it may be a good time to refinance to a more short-term loan. If you pay off your loan in advance, you’ll save on interest — assuming the lender’s interest doesn’t exceed the savings. However, if you prefer not to refinance, then you can make larger monthly payments to reduce the balance faster. You’ll accomplish the same objective and reduce costs by avoiding origination fees that may accompany refinancing. Access quick cash Some lenders offer the option of a cash advance, which is beneficial if you need fast cash. It’s the same process as traditional refinancing, however instead of a new loan that replaces your current one, you’ll receive a lump sum of cash based on the equity in your car. You could also get more favorable loan terms or a reduced monthly payment This type of refinancing does not come without risks. If you take equity you’ve accrued in cash, there’s a chance you’ll be upside-down with your loan which means you’ll be owing more than the amount it’s worth. This can make it harder to make a profit should it’s your intention to market. Additionally, you’ll incur additional debt since your outstanding auto loan amount will be greater. Cons of refinancing your car Pressing the by refinancing is not without risks. Be aware of the disadvantages. A high interest rate when refinancing is a risk because it comes with more expensive interest rates. If your credit has dipped or rates have increased it is possible that you will discover interest rates that are higher than the current rate. In the current economic climate high interest rates aren’t uncommon. Recent events have increased interest rates to record levels. So, it’s recommended that you explore different options to do your best to stay clear of astronomically high interest rates, or just wait until market conditions improve. Additional fees If you are in a tough financial situation Be aware that refinancing your loan is not without cost. They could be applied to and title transfer, prepayment and origination fees. Since the costs are likely to add up, you should calculate the amount that refinancing will cost you and how the rate and term compare to the current loan. Could become upside down If you refinance and extend your loan’s term in any way, you’re more likely to end up owing more than your vehicle’s worth. It is usually referred to as being the result of the other side of your loan. Find out if refinancing your car is a good idea The key to determining whether it is an option that is worth your time is the amount you could potentially save. Be sure to weigh the pros and cons of making use of the benefits . Here are a few scenarios in which it might make sense to refinance: Your credit improved. In the event that your credit rating has increased, you could be offered better terms and rates through refinancing. You received dealer financing. The terms typically offered by dealerships aren’t the best available. Look into other lending options if you currently have . You can’t make payments . In the event of a missed payment, it could result in penalties, credit damage or worse, being able to take possession of your car. If you are unable to make your payments then refinancing could result in a lower monthly payment. You can qualify for a lower interest rate. If the market rate is better than when you initially made an application, you might be eligible for an interest rate that is lower. But this isn’t likely to be the case since rates aren’t currently trending downward because of recent Fed rate increase. If you’re looking to refinance your auto loan begin by looking around with multiple lenders to find the best available rate. Many offer pre-qualification tools on their websites, which allow you to view potential loan offers, which include estimated loan conditions as well as interest rates and monthly payments, without impacting your credit score. It is recommended to get pre-approved with more than three banks, so you can make a formal application with confidence. Next steps Before looking for , weigh the advantages and disadvantages of each and the way they can help you make an informed choice. Ideally, you want to save money rather than simply extending the loan time. If you are struggling financially, it may be sensible to to get a more affordable monthly auto loan payment. Ask the lender to or consider trading your vehicle in and selling the vehicle privately to get the relief you need. If refinancing is the best option for you, for the best auto lender.
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Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers to navigate the details of borrowing money to purchase cars. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances by providing precise, well-studied information that breaks down complicated topics into manageable bites.
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