Many car owners refinance their car loans after a few years to get revised interest rates or extend their monthly payments. But what is car refinancing anyway? Refinancing your car loan is the process of taking out a new loan on your existing one. The new car loan would replace your existing loan with revised terms, interest rates, or monthly payments. It is basically like a new contract that you make with usually a different lender to get your desired terms.
People refinance their car loans to save money on interest or to get some ease in their monthly payments. Read on to find out everything about car refinancing.
Everything You Need to Know About Car Refinancing
Car owners refinance their car loans in the following four scenarios:
- For a longer loan term: Refinancing your car loan to get the loan duration increase makes your monthly payments smaller, depending on your interest rate. However, a longer loan term results in high-interest payments overall.
- For a shorter loan term: On the other hand, getting your auto loan term shortened increases the monthly payments, but you end up paying lower interest payments overall.
- For a lower monthly payment: If you are unable to afford your auto loan payments, you can get your loan refinanced to get lower monthly payments through a longer loan term or a lower interest rate.
- For a lower interest rate: You can get your loan refinanced to get lower interest rates if your credit score has improved. As a result, you will be paying less interest over the life of your auto loan.
What Does Car Refinancing Make Sense?
You can get your auto loan refinanced successfully in the following cases:
- If your credit score has improved, you can get your auto loan refinanced to qualify for a lower APR and interest rate.
- If the market rates of interest have dropped even slightly, you can make decent savings by getting your auto loan refinanced.
- If you think you didn’t get the best deal on your auto loan, you can refinance it with a different lender.
- If your financial situation has worsened, you can get your auto loan refinanced to qualify for lower monthly payments.
Whatever your situation is, analyze your financial situation and market rates, compare different lenders and use a refinance calculator to get a better idea of your auto loan refinancing. If you think you can get a better deal on your loan term, contact a lender.