Getting a refinance auto loan: is it for you?
Payment and Interest Reduction
Getting a refinance auto loan is a big decision and not one to be taken lightly so it is always advisable to speak to a financial expert. While refinancing a vehicle loan can be the right choice for some borrowers, others may find themselves worse off than before.
What is a refinance auto loan?
Refinancing a loan is basically exchanging one loan for another by replacing an existing loan with an alternative loan using the same assets. Most people choose to refinance their vehicle loan to reduce the amount of interest they are paying or to reduce their monthly repayments by getting an increased car loan amortization period.
Are refinance auto loans right for you?
As mentioned above, a refinance auto loan is not for everyone and deciding whether it is a good move for you or not comes down to your individual situation. The following are examples of situations where a refinance auto loan would be the right way to go:
If your current loan has an interest rate from 0 to 2.9 percent obviously you won’t need to refinance for lower interest rates. However, many loans with such low interest rates come with a short amortization period of two or three years which means the monthly repayments could be quite high. Many people feel that after a while these monthly payments become too much, making it difficult for them to pay other bills on time.
With a situation like this, getting a refinance auto loan can help to decrease the amount you pay on your vehicle loan by increasing the amount of time you have to pay off the loan. This does mean increasing the amount of interest you are paying but it could be a good choice for those who need to increase their immediate cash-flow. This scenario doesn’t just apply to those with low interest rates; it can be a wise move for anyone who need to reduce their monthly repayments.
By switching to a vehicle loan with a lower interest rate you could potentially save quite a tidy sum of money. This could be a particularly good idea for anyone who started out with a bad credit score and a loan with a particularly high interest rate of 15 percent or more. However, applying for another loan is only a good idea if you know your credit score has improved and you are fairly certain your application will be approved. If it is you could potentially save up to $1000 in the long term.
Switching to a lower interest loan won’t make much difference to your monthly repayments, they will be reduced but not by much. However, the long-term interest savings could add up to a significant amount if you play your cards right.