Refinancing pros and cons your 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 goal is to help you make better financial choices by providing you with interactive tools and financial calculators that provide objective and unique content, by enabling you to conduct research and compare data for free and help you make sound financial decisions. Bankrate has agreements with issuers such as, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The deals that are advertised on this site are from companies that compensate us. This compensation can affect the way and when products are featured on the site, such as for instance, the order in which they may appear in the listing categories, except where prohibited by law. Our mortgage or home equity products, as well as other home loan products. However, this compensation will not influence the information we provide, or the reviews you see on this site. We do not include the universe of companies or financial offers that may be open to you. Westend61/Getty Images
4 minutes read Read Published March 02, 2023.
Authored by Rebecca Betterton 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 a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain the confidence to take control of their finances with precise, well-studied and well-researched data that breaks down otherwise complex topics into manageable bites. The Bankrate guarantee
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We are compensated in exchange for the placement of sponsored products andservices or when you click on certain links posted on our site. This compensation could influence the manner, place and in what order products appear within listing categories, except where it is prohibited by law for our mortgage or home equity products, as well as other products for home loans. Other factors, like our own website rules and whether a product is offered in your region or within your self-selected credit score range could also affect the manner in which products are featured on this website. We strive to offer an array of offers, 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 increased dramatically to the average monthly payment is $526 for vehicles that are used and $716 for those who purchase new . Many people are considering the possibility of replacing their current loan with a new one — in order to make these costs less burdensome. Refinancing can reduce your monthly payments in the event that your situation has changed or the market has improved since you took out your current loan. However, refinancing does not come without risks and could be expensive in certain instances. So, it’s best to consider the benefits and drawbacks of refinancing and assess your financial situation to determine if it’s the right choice. Pros of refinancing your car Your current car loan center around saving money. It is also possible refinance to pay more than what you owe, if you require cash. Think about these factors when deciding whether refinancing is the right option for you. Lower interest rates Your interest rate significantly impacts the each month’s automobile loan payment. The amount you pay is determined by your credit score, among other things. If your since you took out your loan or credit card, which is the case if you’ve made timely loan payments and responsibly managed your others debts, then it could be a great time to explore refinancing options. You will likely receive higher rates and terms that are more appealing. Lower monthly payments If you are struggling to make your monthly payments Refinancing your mortgage can make your monthly payment more affordable and let you free up money to your budget. You can get lower rates or a longer time frame, or both. However, while the signing off of a loan means you’ll save money every month, it can also result in an increase in the total cost since you’ll be paying more interest over the duration of your loan. You should pay off your loan earlier Refinancing could be a way of having to pay off your loan earlier. If your income has increased following the purchase of your auto loan then it could be a good idea to refinance to a more short-term loan. If you settle your loan in advance, you’ll save on interest as long as the lender’s fees don’t exceed the savings. But if you’d prefer not to refinance, you can make larger monthly payments to lower the balance more quickly. The same goals will be achieved and save money by avoiding the origination fees that may accompany refinancing. Cash in quick time Some lenders offer the option of a cash advance, which is beneficial if you need fast cash. It works the same as traditional refinancing, but in addition to getting a new loan which replaces your existing one, you’ll receive 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 a reduced monthly payment This type of refinancing does not come without risk. In the event that you pull out the equity you’ve accrued in cash, you run the risk that you’ll become upside-down in your loan which means you’ll be owing more than it’s worth. This makes it difficult to make a profit should it’s your intention to market. Plus, you’ll take on more debt because your current auto loan balance will be greater. Pros and cons of refinancing your automobile Refinancing your car by refinancing is not without risk. Take note of these drawbacks. High interest rates Refinancing also comes with the risk of more expensive interest rates. If your credit score has declined or rates have increased it is possible that you will encounter interest rates that are more expensive than the one you currently have. In today’s market, steep interest rates aren’t unusual. Recent events have increased interest rates to record levels. So, it’s in your best interest to explore different options to do your best to stay away from the sky-high rates, or just wait until market conditions improve. Additional fees If you are facing financial difficulties, remember that refinancing your loan comes with extra fees. The costs could include application for prepayment, title transfer, prepayment and origination charges. Since the costs could add up, consider the amount that refinancing will cost you , and also 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 having to pay more than the vehicle’s worth. This is often described as being in default on the wrong side of your loan. How to determine if refinancing your car is an excellent idea? The main factor to determining if is a good idea is the amount of money you could potentially save. Consider the pros and cons before taking advantage of an . Below are some situations where it might make sense to refinance your credit: Your credit has improved. If your credit score has improved, you may get better rates and terms through refinancing. You received dealer financing. The terms typically offered through dealers are not the most beneficial. Explore other lending options in case you are currently . There is no way to pay . In the event of a missed payment, it could result in charges, damaged credit, or even taking possession of your vehicle. If you cannot make payments, refinancing may get you lower monthly payments. You can qualify for a lower interest rate. If the market rate is better than when you initially applied, you could be eligible for a lower interest rate. However, this likely isn’t the case since rates aren’t currently declining due to recent Fed rate increase. If you’re looking to refinance your auto loan, start by shopping 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 estimated loan terms, interest rates and monthly payments, without impacting your credit score. Consider getting pre-approved with minimum three different lenders so you can apply for a loan with confidence. Next steps Before looking for , weigh the advantages and disadvantages, and consider how they will affect you in order to make an informed choice. Ideally, you’d like to save money rather than simply extending the loan term. If you’re having financial difficulties it might be beneficial to opt for an easier monthly auto loan installment. You can ask the lender to consider trading your vehicle in or selling it privately to get the financial relief you require. But if refinancing is the best option for you, look for the best auto lender.
The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the details of borrowing money to purchase an automobile. Written 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 confidence to manage their finances through providing precise, well-studied information that breaks down otherwise complex subjects into bite-sized pieces.
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