Many people turn towards auto refinancing to reduce their monthly car payments, either by increasing their loan term or by getting a lower interest rate. If your lender approves, auto refinancing is a great way to save up some money.
Read on to find out how auto refinancing reduces your monthly car payments and decide if you should go ahead with it.
Auto Refinancing to Reduce Your Monthly Car Payment
Here’s how auto refinancing helps you reduce your monthly car payments:
1. By Getting a Lower Interest Rate
Refinancing your auto loan can help you get a lower interest rate if your lender agrees. Lower interest rates mean you would have to pay reduced monthly payments on the same loan term, which can help you save up quite a lot of money.
There are many ways you can get a lower interest rate to pay cheaper car payments. If your credit score has increased since the time you applied for the original loan, you can get better interest rates now.
Moreover, if the general interest rates in your country have gone down from what they were when you took out the original loan, you can qualify for a lower interest rate even if your credit score is the same.
However, you should note that your monthly loan payments will increase if you get a shorter loan term despite getting a lower interest rate. So if you want to pay off your car loan quickly and are willing to pay increased monthly payments, you should not opt for this option.
2. By Increasing Your Loan Term
Another way to lower your monthly car payments is by getting your loan term stretched out over a longer term, even if you don’t qualify for lower interest rates. By doing so, you will be splitting the remaining balance of your loan amount into more monthly payments. So you will have to pay less every month.
However, there is a downside to this strategy. You will end up paying more in interest than you would have with your original terms.
You can opt for auto refinancing to reduce your monthly car payment. However, you should only do so by requesting a lower interest rate. You should avoid getting a longer loan term by refinancing as you would be paying more in interest, and it’s not a wise decision for long-term savings. We recommend only going for this option when you are tight on cash.