Sometimes, when purchasing a car, you agree to terms that are not the most ideal. Finding yourself trapped in a 5-year auto loan with high interest can sometimes feel overwhelming. Refinancing your auto loan may help, but is refinancing your car really a good idea?
What is refinancing an auto loan?
Refinancing an auto loan means taking out a new loan to pay off you’re the existing auto loan. Then you pay off your original balance to the original creditor and begin to make payments to the new creditor. This new loan is traditionally secured by the vehicle and has monthly payments for a set amount of years.
Why is it a good idea?
Most car buyers choose to refinance their car loan to secure a lower interest rate. It is ideal for some people because it will lower your monthly payment obligation and allow you to put that money elsewhere. For most people car payments are one of the largest payments in their budget, usually coming second to only a mortgage or rent. Refinancing your auto loan may help you free up money in your budget or, manage payments better.
When should I consider refinancing?
There are a number of reasons to consider refinancing an auto loan. If you didn’t get the best offer the first time, you may want to consider refinancing. This especially holds true if your financial situation has improved from the first time around. You may want to consider refinancing if you are having trouble making the payments, industry interest rates change periodically and refinancing may secure you a lower interest rate.
Are there reasons not to refinance?
If you think your credit situation has worsened since your first loan it may not be ideal to choose to refinance. You may end up paying more in the long run with a higher interest rate than before. You also may not want to consider refinancing if you are close to paying off your vehicle, or if your loan term only has a year or less left.
Refinancing your auto loan has a number of benefits that can improve your financial situation and get you a better deal. Each auto loan circumstance is different, to find out if refinancing your auto loan will save you money, contact us at 800-835-3400 or stop by a branch. We are here to help you on your financial journey.