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Pros and cons of refinancing your car: Is it right 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 decisions by providing you with interactive financial calculators and tools, publishing original and objective content, by enabling you to conduct research and compare information for free — so that you can make sound financial decisions. Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Profit The products that appear on this website are provided by companies who pay us. This compensation can affect the way and when products are featured on this site, including, for example, the sequence in which they appear in the listing categories, except where prohibited by law for our mortgage, home equity and other products for home loans. This compensation, however, does have no impact on the content we publish or the reviews that you read on this site. We do not cover the entire universe of businesses or financial deals that might be available to you. Westend61/Getty Images
4 min 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 an expert in navigating the details of taking out loans to purchase cars. 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 passionate about helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. The Bankrate promises
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There are money-related questions. Bankrate has answers. Our experts have been helping you manage your finances for more than four decades. We are constantly striving to provide consumers with the expert advice and tools required to make it through life’s financial journey. Bankrate follows a strict policy, therefore you can be confident that our information is trustworthy and precise. Our award-winning editors and journalists create honest and accurate information to assist you in making the right financial choices. The content created by our editorial staff is objective, factual and is not influenced by our advertisers. We’re open about the ways we’re capable of bringing high-quality information, competitive rates and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for placement of sponsored products andservices or when you click on certain links posted on our site. So, this compensation can influence the manner, place and in what order products appear within listing categories, except where the law prohibits it for our mortgage home equity, mortgage and other home loan products. Other elements, like our own website rules and whether a product is available within your region or within your self-selected credit score range can also impact how and where products appear on this website. We strive to offer the most diverse selection of products, Bankrate does not include information about every financial or credit item or product. Costs of maintaining your car on the road every month is a challenge for many. The monthly payments for cars have soared with the average monthly payment is $526 for used vehicles and $716 if you buy new . Many consumers consider either replacing or refinancing their current loan by getting a new loan — to make these expenses more manageable. Refinancing can reduce your monthly payments if your circumstances have shifted or the market has changed since you obtained your current loan. However, refinancing does not come without risk and can be more expensive in certain instances. So, it’s best to think about the advantages and disadvantages of refinancing, and evaluate your financial situation to determine if it’s a smart decision. Benefits of refinancing your vehicle The your current auto loan is based on saving money. You may also be able to refinance more than what you owe in case you require cash. Think about these factors when deciding if refinancing is right for you. Lower interest rates. Your interest rate greatly affects the monthly automobile loan payment. This number is based on the credit rating of yours, as well as other things. If you’ve taken out your loan and you’re not sure, this could be the case if your have made punctual loan payments and responsibly handled your others debts, then it may be a great time to explore refinancing options. You’ll likely get better terms and rates. Lower monthly payments If you have difficulty making your monthly payments Refinancing your mortgage can help make your monthly payments less costly and let you free up money in your budget. You can get an interest rate that is lower, a longer term or both. But although taking a decision to sign off on a loan is a way you’ll save money each month, it will also mean a higher total cost as you’ll have to pay more interest over the duration of your loan. Make sure you pay off your loan sooner Refinancing can result in having to pay off your loan earlier. If your income has increased since taking out your auto loan, it may be a good time to refinance to a shorter-term. If you pay your loan in advance, you’ll save on interest — assuming the lender’s interest doesn’t exceed the savings. However, if you prefer not to refinance, you can pay more in monthly installments to lower the balance more quickly. This will accomplish the same goal and could save money by avoiding the costs of origination that could be associated with refinancing. Get cash fast Certain lenders provide this service the option of a cash advance, which is beneficial when you require quick cash. It’s the same process as conventional refinancing. However, in addition to a new loan that is a replacement for your current loan, you’ll receive an amount of cash in one lump based on the equity you have in your car. While you may also secure more favorable loan terms or have a reduced monthly payment This type of refinancing is not without risk. By pulling out the equity you’ve accrued in cash, you run the risk that you’ll become upside-down in your loan and owe more than it’s worth. This makes it more challenging to earn a profit when it’s your intention to market. In addition, you’ll be taking on additional debt since your outstanding auto loan amount will be greater. The disadvantages of refinancing your vehicle Refinancing your car by refinancing is not without risks. Consider these disadvantages. The high interest rate of refinancing has the potential of more expensive interest rates. If your credit has dipped or rates have increased it is possible that you will encounter interest rates that are more expensive than the one you currently have. In the current economic climate high interest rates are not uncommon. Recent events have led to interest rates reaching record highs. It’s therefore in your best interest to shop around for different options to stay clear of astronomically high interest rates or wait it out until the market conditions improve. Additional charges If you’re struggling financially Be aware that refinancing your loan is not without cost. These costs can include application for prepayment, prepayment, title transfer and origination fees. Since these fees can add up, calculate the amount that refinancing costs you and how the rate and term compare to your current loan. Could become upside down If you refinance the term of your loan, you are more likely to end up paying more than the value of your car is worth. It is usually described as being on the other side of your loan. How to determine whether refinancing your vehicle is the best option? The most important factor to determining if it’s an option that is worth your time comes down to the amount of money you could potentially save. Consider your pros and cons before using the benefit of a . Below are some situations where it might make sense to refinance: Your credit improved. When your score is better, you could get better terms and rates through refinancing. You received dealer financing. Typically, the terms provided through dealerships are not the most favorable. Consider other loan options if you currently have . It is impossible to make payments . In the event of a missed payment, it could result in penalties, credit damage or worse: repossession of the vehicle. If you are unable to make your payments, refinancing may get you lower monthly payments. You are eligible for a higher interest rate. If rates are higher than they were when you first applied, you may qualify for an interest rate that is lower. But this isn’t likely to be the case as market rates aren’t currently decreasing because of recent Fed rate increase. If you’re considering refinancing your auto loan begin by looking for lenders across the market to determine the most competitive rate. Many offer pre-qualification tools on their websites, which allow users to see the possibility of loan offers, which include estimates of loan terms as well as interest rates and monthly payments, all without affecting your credit score. It is recommended to get pre-approved with at least three lenders, so you can apply for a loan with confidence. Next steps Before looking for the pros and disadvantages and how they can help you make an informed choice. Ideally, you want to save money rather than simply stretching out your loan time. If you’re struggling financially, it may be sensible to consider an affordable monthly auto loan installment. Ask the lender to trade your car and selling the vehicle privately to obtain the relief you need. However, if refinancing seems like the right choice for you, look for the most reliable auto lender.
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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the ways and pitfalls of borrowing money to buy a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate from late 2021. They are passionate about helping readers gain confidence to manage their finances by providing concise, well-studied and well-researched content that breaks down complicated topics into manageable bites.
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