Car refinancing may be an option to consider if you are not happy with your current auto loan. In fact, it may be an opportunity to get a better loan and make lower payments.
What is car refinancing?Car refinancing involves paying off an existing auto loan with a new one. The process is usually pretty simple. A new lender pays off your old loan, and the title is then transferred to that new lender. You then make your monthly payments to your new lender.
When is car refinancing a good idea?There may be several good reasons to refinance your car loan.
- You may be able to get a lower interest rate with car refinancing.
- You can get lower monthly payments.
- You may have an upside-down loan. This means that your current loan is more than the car is worth. Car refinancing can get you out of this situation.
Your current loan situation may not be ideal because you got the loan through the dealership when you initially bought the car. Car dealerships, although convenient when purchasing the car, do not necessarily provide the best deals. Websites such as LendingTree allow you to compare auto loans from different lenders. You simply fill out one simple form and receive offers from up to four different lenders. After doing your research, you can choose the one that best meets your needs for car refinancing.
Drawbacks of car refinancingThere are some drawbacks to car refinancing, but they are not that significant. Of course, when you get the new loan, your credit score will take a temporary hit as it does when you get any loan. Also, there are fees involved with car refinancing. There are lien holder fees ($5 to $10), state re-registration fees ($5 to $75) and possibly a prepayment fee. (This is set by your original lender.) Because these fees are usually so low, it won’t take many months of paying a better rate on your auto loan to make car refinancing worth it financially.
If you have an auto loan that is not satisfactory to you, investigate your options for car refinancing. You may find that you can get a lower rate and make lower monthly payments.