Everyone loves saving money – it’s a constant battle to try and find the best ways to cut back on expenses and stick to a budget. This is why it might be time to refinance your car loan and get your finances back on track. If you have a new job and a better credit rating than you did when you started your car loan, then you might want to consider refinancing your car loan. But, if refinancing it comes with a hefty penalty, then its best to avoid refinancing it.
Before considering what the best option is for you, take a look at the pros and cons. If it will end up being cheaper in the long run, then talk to your lender about refinancing the loan. It works on an individual basis, so what works for you might not work for someone else. It’s always a good idea to get a general idea before making a decision.
Pay a Lower Interest Rate
This works if you’ve had your car for several years, and you want to refinance the loan for a better rate. Rates may have been higher several years ago, so refinancing will lower the amount you have to pay on a loan.
Lengthen the Loan Term
One pro of refinancing your car loan is lengthening it. If you have a medical emergency or move house, you may need to cut back on expenses. This is why refinancing your loan to a longer term might be a good idea. It will end up costing you more in the long run, but if focusing on the other area of your life is more important, then it’s a good idea to refinance the loan.
Shorten the Loan Term
If you’re making more income than you did when you purchased your car, you might want to consider refinancing your car loan to a shorter term. This means that you’ll be able to pay back to loan faster, avoiding interest rates and saving money in the long run.
You’ve Improved Your Credit
If you have a better credit rating than you did when you purchased your car, then you might want to consider refinancing it. If you had a low or poor credit rating when you got the car, you will have ended up paying more interest than someone who had good credit. If your credit rating has improved, then it’s definitely time to consider refinancing your car.
Pay a Penalty
Your car loan may have come with a termination fee. This is a major reason why you wouldn’t want to refinance your car loan. Penalties can come at a hefty price, so to avoid this unnecessary cost, it’s best to avoid refinancing your car loan. You’d only want to refinance it if you’d end up saving more on your new loan, while also paying the fee, than if you were to stick to your old loan.
Lengthen the Loan
If your loan is currently 48 months long, then you’d want to avoid refinancing it if its going to extend it to 60 months. You’d end up paying more in interest rates with an extended loan, so it’s best to avoid refinancing it in this case. For example, if you switch to a loan with a lower interest rate, but it extends the loan to a longer period of time, then you’ll end up paying more in the long run.
Be careful with refinancing to loans that showcase lower interest rates but ultimately extend the time you have to pay.
There are many pros and cons to refinancing your car loan, many of which have to do with your personal finances and credit rating. It’s important to do the research before refinancing your loan to make sure you’re saving money in the long run and not paying more than you should. But if you do decide to refinance your loan, then let your lender know so you can go over the appropriate logistics and make sure everything is in order.