The pros and cons to 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 aim is to assist you make better financial choices by providing you with interactive financial calculators and tools, publishing original and objective content, by enabling you to conduct your own research and compare information for free and 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 deals that are advertised on this site are from companies that compensate us. This compensation may impact how and when products are featured on the site, such as, 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 home equity, mortgage and other products for home loans. However, this compensation will not influence the information we publish, or the reviews that you see on this site. We do not contain the vast array of companies or financial offerings that could be available to you. Westend61/Getty Images

4 minutes read Read Published March 02, 2023.

Writer: Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in understanding the details of borrowing money to buy an automobile. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain the confidence to manage their finances by providing clear, well-researched information that simplifies complicated topics into bite-sized pieces. The Bankrate promises

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If you have questions about money. Bankrate has the answers. Our experts have been helping you master your money for over four decades. We continually strive to provide our readers with the professional guidance and the tools necessary to succeed throughout life’s financial journey. Bankrate adheres to a strict code of conduct , therefore you can be confident that our content is truthful and accurate. Our award-winning editors, reporters and editors create honest and accurate content to help you make the right financial choices. The content we create by our editorial team is honest, truthful, and not influenced by our advertisers. We’re open about how we are in a position to provide quality content, competitive rates and helpful tools to you , by describing how we earn our money. is an independent, advertising-supported publisher and comparison service. We receive compensation for the placement of sponsored products or services, or when you click on certain hyperlinks on our site. Therefore, this compensation may affect the way, location and in what order the products are listed within categories, with the exception of those it is prohibited by law for our mortgage, home equity and other products for home loans. Other elements, like our own proprietary website rules and whether or not a product is available within your area or at your personal credit score may also influence how and where products appear on this site. While we strive to provide an array of offers, Bankrate does not include details about every credit or financial product or service. The cost of keeping your vehicle in the garage each month is a major challenge for many. Monthly payments on cars have gone up — an average monthly installment of $526 for used vehicles and $716 if you buy new . Many people are considering either replacing or refinancing their current loan by a new one — to make these costs more manageable. Refinancing could reduce your monthly payment if your circumstances have shifted or market conditions have improved since you borrowed the current loan. However, refinancing does not come without risk and can be more costly in some instances. So, it’s best to consider the benefits and drawbacks of refinancing and assess the financial circumstances of your situation in order to decide if it’s a wise choice. Benefits of refinancing your vehicle Your current car loan focus on saving you money. You may also be able refinance to pay more than what you owe in case you require cash. Think about these factors when deciding whether refinancing is suitable for you. Lower interest rates The rate of interest greatly affects your monthly auto loan payment. This is based on the credit rating of yours, as well as other factors. If your since you took out your loan, which could be the case if you’ve been making punctual loan payments and have managed your various debts. It could be the perfect time to explore refinancing options. You’ll likely get more favorable terms and rates. Reduced monthly payments If you have difficulty making your monthly payments Refinancing your mortgage can make your monthly payment less expensive and help you let you free up money within your budget. You can choose lower rates or a longer time frame, or both. But although taking a decision to sign off on a loan is a way you can save money every month, it will also mean a higher total cost as you’ll pay more in interest over the duration that of the loan. Pay off your loan sooner Refinancing can result in the repayment of your loan in a hurry. If your income has grown after taking out your auto loan, it may be a good idea to switch to a shorter term. If you pay your loan in advance, you’ll save on interest as long as the lender’s interest doesn’t exceed the savings. However, if you prefer not to refinance, you can pay more in monthly installments to reduce your balance quicker. You’ll accomplish the same objective and reduce costs by avoiding charges for origination that can be associated with refinancing. Get cash fast Certain lenders provide this service this service, which is ideal if you need fast cash. It works the same as traditional refinancing, however in addition to getting a new loan which replaces your existing one, you’ll also receive a lump sum of cash based on the equity in your vehicle. You could also get more favorable loan terms or a lower monthly payment, this type of refinancing comes with the risk. By pulling out the equity you’ve built up in cash, you run the risk that you’ll become upside-down in your loan, owing more than the amount it’s worth. This can make it harder to make a profit should you decide to sell. Plus, you’ll take on additional debt since your current auto loan amount will be greater. The disadvantages of refinancing your vehicle Pressing the by refinancing is not without its risks. Take note of these drawbacks. A high interest rate when refinancing comes with the risk of greater interest rates. If your credit rating has dropped or interest rates have gone up there is a chance that you’ll discover interest rates that are higher than the one you currently have. In today’s market the high rates of interest are not uncommon. Recent events have increased interest rates to record levels. It’s therefore recommended that you explore different alternatives to try to avoid sky-high interest rates or wait it out until conditions improve. Additional fees If you are struggling financially Be aware that refinancing your loan will incur additional costs. They could be applied to, prepayment, title transfer and origination charges. Because the fees could add up, consider how much the refinance will cost you , and also how the rate and duration compare to your current loan. Could become upside down If you refinance your loan’s term and you’re more likely to be paying more than the value of your car is worth. This is often described as being the result of the wrong side of your loan. Find out whether refinancing your car a good idea The key to determining if is a good idea comes down to the amount you can potentially save. Weigh the pros and cons while making use of the benefits . Below are some situations where it could be beneficial to refinance: Your credit is improving. When your score is better, you may be offered better rates and terms through refinancing. You received dealer financing. Typically, the terms provided through dealers are not the most beneficial. Consider other loan options in case you are currently . You can’t make payments . Missing payments can result in fees, damaged credit or even repossession of the vehicle. If you cannot make 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 a lower interest rate. But this isn’t likely to be the case because market rates aren’t currently decreasing due to recent Fed rate hikes. If you’re looking to refinance your auto loan, start by shopping for lenders across the market to determine the most competitive rate. There are many lenders that offer pre-qualification tools on their websites, which allow you to view the possibility of loan deals, as well as estimated loan terms, interest rates and monthly payments, all without affecting your score on credit. You should consider getting pre-approved by more than three banks before you can make a formal application with confidence. Prior to deciding on , weigh the advantages and disadvantages of each and the way they can help you make an informed decision. Ideally, you’d like to save money rather than simply stretching out the loan term. If you’re struggling financially, it may be sensible to to get an easier monthly auto loan payment. Request the lender to consider trading your car in and selling the vehicle privately to get the financial relief you require. But if refinancing is the right option for you, look for the most suitable auto lender.


This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ins and outs of securely borrowing money to buy a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to control their finances with concise, well-studied and well-researched content that breaks down complicated subjects into bite-sized pieces.

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