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Refinancing pros and cons a car: Is it right for you? Part Of Refinancing a Car Loan In this series Refinancing a Car Loan Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive financial calculators and tools as well as publishing objective and original content. We also allow you to conduct research and compare information for free - so that you can make informed financial decisions. Bankrate has agreements with issuers including, but not limited to American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The deals that are advertised on this site come from companies that compensate us. This compensation could affect how and when products are featured on this site, including for instance, the order in which they may appear within the listing categories and other categories, unless prohibited by law for our mortgage, home equity and other home loan products. But this compensation does not influence the information we provide, or the reviews appear on this website. We do not contain the vast array of companies or financial offerings that could be open to you. Westend61/Getty Images
4 min read Published March 02, 2023.
Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ways and pitfalls of borrowing money to buy a car. The article was edited by Rhys Subitch Edited by Auto loans editor Rhys has been writing and editing for Bankrate since late 2021. They are committed to helping readers gain the confidence to take control of their finances with concise, well-studied information that breaks down otherwise complicated subjects into digestible pieces. The Bankrate guarantee
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You have money questions. Bankrate has answers. Our experts have helped you understand your finances for more than four decades. We continually strive to give our customers the right advice and tools needed to make it through life's financial journey. Bankrate follows a strict , so you can trust that our content is honest and reliable. Our award-winning editors and reporters create honest and accurate content that will help you make the best financial decisions. The content created by our editorial team is factual, objective, and not influenced through our sponsors. We're honest about how we are capable of bringing high-quality content, competitive rates, and useful tools to our customers by explaining how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the promotion of sponsored goods and, services, or by you clicking on certain links posted on our site. This compensation could impact how, where and when products appear within listing categories, unless prohibited by law for our mortgage or home equity products, as well as other home loan products. Other elements, like our own rules for our website and whether or not a product is available within your area or at your own personal credit score can also impact the manner in which products are featured on this website. Although we try to offer a wide range offers, Bankrate does not include the details of each credit or financial item or product. It is expensive to keep your car in the garage each month is a major challenge for many. Car payments have increased dramatically with an average monthly payment of $526 for used cars and $716 if you buy new . Many consumers consider -- or replacing their current loan with a new one -- to make these costs less burdensome. Refinancing may reduce your monthly payments in the event that your situation has changed or market conditions have changed since you obtained the current loan. However, refinancing does not come without the risk of being costly in some instances. It is therefore important to consider the benefits and drawbacks of refinancing and analyze your financial situation to determine if it's the right move. Benefits of refinancing your vehicle Your current car loan focus on saving you money. It is also possible refinance to pay more than what you owe, if you require cash. Take these into consideration when deciding whether refinancing is the right option for you. Lower interest rates. Your interest rate significantly impacts your each month's car loan payment. This number is based on your credit score, as well as other things. If your since you took out your loan and you're not sure, this could be the case if you've been making punctual loan payments and effectively dealt with other debts, it may be the perfect time to explore refinancing options. You'll likely get more favorable terms and rates. Reduced monthly payments If you are struggling to make your monthly payments Refinancing your mortgage can help make your monthly payments less costly and free up cash to your budget. You can opt for lower rates and a longer duration or both. While the signing off of a loan means you can save money every month, it will also mean a higher total cost as you'll pay more in interest over the course of your loan. Make sure you pay off your loan sooner Refinancing can be a way of having to pay off your loan earlier. If your earnings have increased after taking out your auto loan, it may be an ideal time to refinance to a shorter-term. If you pay your loan early, you'll save on interest as long as the lender's fees don't exceed your savings. But if you'd prefer not to refinance, you can pay more in monthly installments to lower the balance more quickly. The same goals will be achieved and could reduce costs by avoiding origination fees that may accompany refinancing. Get cash fast Some lenders offer this service, which is ideal when you require quick cash. It's the same process as traditional refinancing, but instead of a new loan that is a replacement for your current loan, you'll receive an amount of cash in one lump based on the equity you have in your car. While you may also secure more favorable loan terms or a lower monthly installment however, this kind of refinancing comes with the risk. By pulling out the equity you've accrued in cash, you run the risk that you'll become upside-down in your loan which means you'll be owing more than the amount it's worth. This can make it harder to turn a profit if it's your intention to market. Plus, you'll take on extra debt, as your current auto loan balance will be greater. Cons of refinancing your car The process of refinancing not without risk. Be aware of the disadvantages. High interest rates Refinancing also comes with the risk of greater interest rates. If your credit rating has dropped or interest rates have gone up, you may find interest rates higher than the one you currently have. In today's market the high rates of interest aren't unusual. Recent events have driven interest rates up to record highs. It's therefore recommended that you look around for various options to do your best to avoid sky-high interest rates, or just wait until the market conditions improve. Additional fees If you are in a tough financial situation be aware that refinancing a loan is not without cost. They could be applied to for prepayment, title transfer, prepayment and origination charges. Since these fees can add up, calculate the amount that refinancing will cost you , and also how the rate and term compare to your current loan. Could become upside down If you refinance the term of your loan in any way, you're more likely to end up owing more than your vehicle's worth. This is commonly described as being the result of your loan. How to determine whether refinancing your car an excellent idea? The main factor to determining if is an option that is worth your time comes down to the amount of money you could save. Consider both the advantages and disadvantages while taking advantage of an . Here are some scenarios where it might make sense to refinance: Your credit improved. When your score is better, you might get better rates and terms by refinancing. You received dealer financing. Typically, the terms offered by dealerships aren't the best available. Consider other loan options if you currently have . You can't make payments . Failure to pay can lead to charges, damaged credit, or worse: being able to take possession of your car. If you cannot make payments, refinancing may get you lower monthly payments. You qualify for a better interest rate. If market rates are better than when you initially applied, you may qualify for an interest rate lower. But this isn't likely to be the case since the market rate isn't declining because of recent Fed rate increases. If you decide to refinance your auto loan begin by looking around with multiple lenders to find the best available rate. There are many lenders that offer pre-qualification tools on their websites, which allow you to view possible loan offers, including estimated loan terms as well as interest rates and monthly payments, without affecting your credit score. Consider getting pre-approved with at least three lenders so you can make a formal application with confidence. The next step is to, prior to looking for the best option, consider the benefits and disadvantages, and consider how they will affect you in order to make an informed choice. Ideally, you want to save money rather than simply stretching out your loan time. If you're struggling financially it might be beneficial to consider an easier monthly auto loan installment. Ask the lender to or consider trading your car and selling the vehicle privately to obtain the relief you need. However, if refinancing seems like the right choice for you, for the most reliable auto lender.
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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ways and pitfalls of taking out loans to buy a car. Written by Rhys Subitch Edited by Auto loans editor Rhys has been editing and writing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances by providing precise, well-studied information that break down complex topics into manageable bites.
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