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So you’re thinking of refinancing your auto loan. We agree — acquiring a new auto loan to pay off the existing one with better terms sounds pretty convenient. But refinancing isn’t always the best idea.
This is why we have made a detailed guide explaining the pros and cons of auto loan refinancing so you can make an informed decision. Let’s dive in!
Pros of Refinancing an Auto Loan
Here are five key benefits of auto refinancing:
Lower interest rate
Interest rates can go up and down, depending on the economy and other socio-political factors. Loan refinancing is an excellent way to get a lower interest rate on your vehicle. Even a small reduction in the rate can help you save hundreds of dollars overall.
Let’s say you had poor or no credit when you first bought your loan. If your credit score has improved, you could qualify for a lower interest rate. This is especially true if you’ve made consistent monthly payments in the past 6-12 months.
Lower monthly rate
Refinancing can also help you reduce the monthly payment. For instance, by refinancing, you can extend the loan term. The total loan balance will be spread over a longer period, resulting in lower monthly payments.
If you feel like your entire paycheck is going into loan repayments, refinancing is a great option. You’ll have more room in your budget.
Pay off the loan earlier
On the other hand, you can refinance your loan to a shorter term. Let’s say your side hustle is doing great and you’ve got some extra cash coming in. By refinancing, you can sign up for a shorter loan term and pay off the loan earlier.
Ability to switch lenders
Acquiring an auto loan from an unreliable lender isn’t the end of the road. There’s always a way out. And refinancing is one of them. It allows you to switch to a reputable auto loan lender, such as RefiJet.
Access quick cash
Some lenders allow you to tap into your car’s equity. Whatever you have already paid into your car is the equity on your vehicle. In some cases, you may be able to get cash back from your car’s equity. You can use this cash for other necessities.
Cons of Refinancing an Auto Loan
On the flip side, there are three key disadvantages of refinancing your auto loan, including:
Additional fees
Refinancing an auto loan comes with additional fees, including application and origination fees. If you’re switching lenders, you may also have to pay a title transfer fee.
Possibility of a high interest rate
If you refinance to a longer loan term, you might pay more interest over the life of the loan.
Possibility of upside-down loan
This is where things get a little complicated. If you extend the loan term, you could end up paying more than the vehicle’s actual cost. This is called going upside-down on your auto loan.
Despite the cons, refinancing an auto loan is an excellent way to save money, especially if your credit score has improved and you want to switch lenders.
