Refinancing is often a financial move that is solely associated with home mortgages. What many may not know, however, is that you can refinance your car loan as well. Just as it is with home loans, it is important that you know what auto refinancing entails and understand the advantages and disadvantages before making the decision to refinance. If you’re interested in lowering your car payments and seeking out new loan terms, here are some of the pros and cons of financing your car.
Refinancing Pros and Cons
Pro: you can get lower interest rates on your existing auto loan agreement
Lower interest rates mean more money in your pocket, which can be a good idea for individuals who are making on-time payments but find themselves with little money in their budget for other necessities. Those who choose to refinance car loans can begin by speaking to their lender about getting a better deal for the remainder of their loan. Of course, it is important that you have great credit history and a better score than you had going in. Otherwise, the chances that you will be able to refinance for a lower interest rate will be dramatically reduced.
Con: you may end up paying more down the road
Many turn to refinancing their car in an effort to save money and reduce their monthly payments. The problem? Not everyone pays attention to the additional fees or costs that come with refinancing. Although you may think that choosing to refinance your loan is saving you money now, hidden costs associated with your switch to a new offer may actually mean that you are not paying less for your loan in the long run. When you begin speaking with your lender about refinancing, make sure that you get all of the necessary information about how much it will cost overall, even if the interest rates appear to be more desirable.
Pro: you may have the option to extend the life of the loan
In some cases, the rates may be fine for some individuals. However, major life changes that impact their budget can cause them to have temporary financial hardships. In these events, refinancing and extending the life of the loan can give you the opportunity to lower your monthly payments so that you have extra money to spend on a monthly basis.
Con: a longer loan life doesn’t mean you will necessarily be saving
Of course, extending the life of the loan does not necessarily mean that you will end up paying less on your car. Extensions can result in paying more than you originally agreed to. Even though your monthly payments may decrease, the total amount overall can end up being greater since you are still paying less over a longer amount of time (in addition to the amount that you already paid off). Consider this before you make the decision to refinance your auto loan.
Additional tip: consider making your next purchase a used car
Most people are aware that a new car is not always the best bang for your buck. In fact, used cars are not only more affordable, but you may be able to save on monthly payments simply by deciding to purchase an older car over a new one. Next time you decide to add a new car to your household, consider seeking out a dealership near you that has quality cars for sale. Another great way to get a deal on a car is by seeking repossessed cars for sale. Not only are these cars more affordable, but they are often in good condition as well, which is perfect for those looking to purchase a used vehicle.
So, should you decide to refinance? It depends on your individual situation and whether or not it would benefit you. Make sure to consider the points above and determine the overall benefits before refinancing your car.