Are you presently in the midst of a car loan? Have you thought about venturing into auto loan refinancing to score the best deal on your installments? Before diving in, it is essential to ponder the advantages and disadvantages of this financial move.
WHEN IS AUTO LOAN REFINANCING ADVISABLE?
If auto loan refinancing is on your mind, you should first consider when and why it would be beneficial. Evaluating factors such as your credit score and the terms of the new loan would help in making an informed decision. Below are some aspects to reflect upon:
1. IMPROVED CREDIT SCORE
Did your credit score rise since you embarked on your original car loan journey? A better score might pave the way for a lower interest rate which will, in turn, enable refinancing to be a worthwhile decision.
2. SUPERIOR DEAL
Auto loan refinancing is advisable only if it wrangles a superior deal for you. Hence, observe the prevailing interest rates and term lengths. If the interest rates today are considerably lower than your existing ones, it’s an opportune moment to refinance.
3. CHANGES IN INCOME
If your earnings have recently decreased, refinancing your auto loan to reduce your monthly expenses can be worthwhile.
ADVANTAGES OF AUTO LOAN REFINANCING
If you believe auto refinancing is the best course of action for you, there are several benefits:
1. LOWER INTEREST RATE
An improved credit score usually leads to a lower interest rate on your loan, enabling faster repayment.
2. REDUCED MONTHLY PAYMENT
With a change in financial circumstances, loan repayments might become burdensome. By obtaining a loan with an extended term, more money becomes available for other expenses each month.
3. IMPROVED CASH FLOW
Refinancing your car could provide immediate access to cash flow.
4. DEBT CONSOLIDATION
For multiple car loans, refinancing could streamline payments and make loan management more manageable.
DISADVANTAGES OF AUTO LOAN REFINANCING
Refinancing your car loan isn’t without its drawbacks. Unforeseen problems could arise, which need to be taken into account:
1. REFINANCING COSTS
Typically, refinancing involves certain costs, such as lender fees, title fees, closing fees and early closure penalties for the original loan.
2. HIGHER INTEREST PAYMENTS
Refinancing might actually lead to higher total interest payments, especially if you’re extending the loan term.
3. LONGER LOAN TERM
An extended loan term could result in paying significantly more for your car, especially when car’s depreciation and potential repair costs are factored in.
CONCLUSION
