Pros and cons of refinancing a 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 smarter financial decisions by offering interactive financial calculators and tools that provide objective and unique content. This allows you to conduct your own research and compare data for free – so that you can make financial decisions with confidence. 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 offers that appear on this website are provided by companies that pay us. This compensation can affect the way and when products are featured on this site, including the sequence in which they appear in the listing categories in the event that they are not permitted by law. Our mortgage home equity, mortgage and other home loan products. This compensation, however, does have no impact on the content we publish or the reviews appear on this website. We do not contain the universe of companies or financial offers that may be accessible 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 an expert with 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 from late 2021. They are passionate about helping readers gain the confidence to manage their finances with precise, well-studied and well-researched data that simplifies complicated topics into bite-sized pieces. The Bankrate promise
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This compensation could influence the manner, place and when products appear in listing categories, unless it is prohibited by law for our mortgage home equity, mortgage and other home lending products. Other factors, like our own proprietary website rules and whether the product is available within 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. Although we try to offer the most diverse selection of products, Bankrate does not include the details of each credit or financial item or product. The cost of keeping your vehicle on the road every month is a challenge for many. The monthly payments for cars have gone up — the average monthly payment is $526 for used vehicles and $716 for those who purchase new . Many consumers consider the possibility of replacing their current loan by getting a new loan — in order to make these costs less burdensome. Refinancing can lower your monthly payments if your circumstances have shifted or the market has improved since you took out your current loan. However, refinancing comes with the risk of being expensive in some cases. So, it’s best to think about the advantages and disadvantages of refinancing and assess the financial circumstances of your situation in order to determine if it’s a smart move. Benefits of refinancing your vehicle Your current car loan focus on saving you cash. You may also be able refinance to pay more than what you owe in case you require cash. Consider these when determining whether refinancing is the right option for you. Lower interest rates. Your interest rate significantly impacts the every month car loan payment. This number is based on your score on credit, in addition to other factors. If you’ve been since taking out your loan or credit card, which is the case if your have made regular loan payments and responsibly dealt with various debts. It might be a good time to consider refinancing your options. It is likely that you will receive better terms and rates. Reduced monthly payments If you are struggling to make your monthly payments Refinancing your mortgage can make your monthly payment less expensive and help you let you free up money to your budget. You can opt for lower rates or a longer time frame, or both. While signing off on a means you can save money every month, it also means an increase in the total cost since you’ll have to pay more interest over the duration of the loan. Make sure you pay off your loan earlier Refinancing could also lead to having to pay off your loan earlier. If your income has increased since taking out your auto loan, it may be a good idea to consider refinancing to a shorter term. If you pay your loan in advance, you’ll save on interest as long as the lender’s fees don’t exceed the savings. However, if you prefer not to refinance, then you can pay more in monthly installments to reduce your balance quicker. You’ll accomplish the same objective and could reduce costs by avoiding origination fees that may accompany refinancing. Get cash fast Certain lenders provide this service this service, which is ideal when you require quick cash. It’s similar to traditional refinancing, but in addition to getting a new loan which replaces your existing one, you’ll also get an amount of cash in one lump dependent on the equity you have in your vehicle. While you may also secure better loan terms or have a reduced monthly payment This type of refinancing is not without risks. If you take equity you’ve accrued in cash, you run the risk that you’ll become upside-down in your loan and owe more than the amount it’s worth. This makes it more challenging to make a profit should you decide to sell. Plus, you’ll take on additional debt since your current auto loan balance will be higher. Pros and cons of refinancing your automobile Pressing the by refinancing is not without its risks. Take note of these drawbacks. A high interest rate when refinancing has the potential of greater interest rates. If your credit score has declined or rates have increased it is possible that you will find interest rates higher than your current one. In the current economic climate the high rates of interest are not uncommon. Recent developments have led to interest rates reaching record levels. Therefore, it’s good to explore different options to stay away from the sky-high rates, or just wait until market conditions improve. Additional fees If you are struggling financially be aware that refinancing a loan is not without cost. The costs could include application, title transfer, prepayment and origination charges. Because the fees are likely to add up, you should calculate the amount the refinance will cost you , and also how the rate and term compare to your current loan. Could become upside down If you refinance and prolong your loan’s duration, you are likely to end up owing more than your vehicle’s worth. It is usually referred to as being on the other side of your loan. How to determine whether refinancing your vehicle is an excellent idea? The main factor to determining if it’s an option that is worth your time comes down to the amount you can potentially save. Weigh the pros and cons while making use of the benefits . Here are some scenarios where it might make sense to refinance: Your credit is improving. In the event that your credit rating has increased, you could get better terms and rates through refinancing. You received dealer financing. The terms typically offered through dealerships are not the most favorable. Consider other loan options if you have . There is no way to pay . Missing payments can result in penalties, credit damage or worse: being able to take possession of your car. If you cannot make payments, refinancing may get you a lower monthly payment. You are eligible for a higher interest rate. If rates are higher than when you initially applied, you may qualify for an interest rate that is lower. However, this likely isn’t the case since rates aren’t currently trending downward because of recent Fed rate increases. If you’re considering refinancing your auto loan begin by looking for lenders across the market to determine the most competitive rate. Many offer pre-qualification tools on their websites that allow you to look at possible loan offers, which include estimates of loan conditions as well as interest rates and monthly payments, without impacting your score on credit. It is recommended to get pre-approved with at least three lenders before you can apply for a loan with confidence. The next step is to, prior to looking for , weigh the advantages and disadvantages and how they can help you make an informed decision. In the ideal scenario, you would like to save money rather than simply stretching out your loan time. If you’re struggling financially you might want to consider an affordable monthly auto loan payment. Request the lender to or consider trading your car in or selling it privately for the relief you need. However, if refinancing seems like the right choice for you, then look for the most reliable auto lender.
Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the details of borrowing money 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 passionate about helping readers gain confidence to control their finances with concise, well-studied and well-researched content that break down complex topics into manageable bites.
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