In a nutshell, car refinance loans are aimed at making your current circumstances better, both mentally and financially. Sometimes, the only way to get out of a bad loan is to apply for a new one, which means refinancing. After all, no one wants to be stuck in a deal with a high-interest rate for long. Here’s what happens when you refinance a car.
You May Land a Better Deal
A better deal means favorable payment terms, short duration, and a low-interest rate. Here, you must be careful with the combination of your interest rate and payment duration. If the duration is spread out for a long period, a low-interest rate won’t serve you any benefit because you will be paying a huge amount altogether.
On the other hand, a high-interest rate and a short duration may also not work out because, again, you will be paying a considerable amount every month. The best combination here requires an analysis of your financial standing. A lower interest rate spread out for a reasonable duration should be the way out here.
Your New Lender Will Look At Your Credit History
Nothing determines your new deal more than your credit history. Most lenders are interested in finding out your payment patterns to figure out the right plan for you. If you have been inconsistent with on-time payments and have bankruptcies or repossessions stated in the credit reports, then you may have a hard time finding a lender who’s willing to give you a lower interest rate.
The rule is, the higher your score, the lower your interest rate, and the lower your score, the higher your interest rate. Hence, you may want to wait for a few months and work to improve your credit history before proceeding with a car loan refinance application.
You May Be Able to Change the Length of Your Loan Terms
If the reason you’re seeking a car loan refinance is to change your loan length terms, then you may have to look for a lender willing to do so. Your ultimate goal is to seek lower monthly payments for a reasonable number of months or years.
You Can Add or Remove Someone As Your Loan Co-Signer
Since refinancing allows you to get a new loan with a brand new contract, it means that you have the chance to do something you couldn’t do with the original loan. One such example is co-signing. Most people seek to refinance because they either want to add or remove someone from that position.
You May Be Able to Save Money
Last but not least, when you refinance a car loan, you stand a huge chance of improving your financial situation. This means that the amount you couldn’t spare from your spendings in the last deal can now be kept for savings since you’ll most likely have lower payments per month.
The Bottom Line
In the end, there are several consequences of refinancing your car based on your requirements. You can either look forward to greater flexibility, lower monthly payments, and a lower interest rate or a deal even worse than what you previously had. Therefore, make sure to communicate your needs effectively and shop around before settling for a new lender.