Refinancing your vehicle
Lower your interest rate
One of the best reasons to refinance an auto loan is if you have the opportunity to reduce the interest rate. If you previously had no credit or bad debt, it is worth checking to refinance your car loan after a couple of years to see if you get better offers.
Your credit score may have improved enough to qualify for a lower interest rate. With a lower interest rate, you will be able to pay off your loan faster or reduce your monthly payment by paying it at the same rate. Either way, you will pay less for the duration of the loan.
Reduce your monthly payment
Sometimes, a costly event like having a baby, unforeseen medical bills, or a natural disaster can put you in a situation where you need to cut down on your monthly expenses. Refinancing could allow you to extend the duration of your loan, thus lowering your monthly payments.
For example, if you owe another two years on your current loan, it may be possible to refinance and extend the term to four years. Adding two years to your loan should substantially reduce your monthly payment, depending on the interest rate you get.
You’ll pay for another two years, but free up some money on a monthly basis, helping you get through a tough time. Keep in mind, however, that this will also mean that you will pay more interest over the life of the loan.
Improve your cash flow
If you currently owe less than your vehicle is worth, you may be able to access more cash through refinancing. For example, let’s say you have owned your vehicle for three years.
Your vehicle is currently worth $ 8,000 and you still owe $ 5,000 on your auto loan. You need money for a small home improvement project. One option would be to refinance your vehicle for $ 6,500.
You will still owe less than the vehicle is worth and have $ 1,500 of new cash available to spend after the new loan has repaid your previous $ 5,000 balance.
The $ 1,500 can now be used for your home improvement project. Be careful though. A car, unlike a home, is always a depreciable asset that can lose more than 10% of its value within the first month of ownership and more than 20% within the first year.
Understanding the costs of refinancing
Sometimes you can refinance with a lower interest rate, but because the loan is extended, you will actually pay more over the term of the loan.
Use a loan calculator to make sure you save money overall. Getting the lowest monthly rate might be what you’re looking for, but if you really want to pay less overall, it’s important to do the math.
Freeing up money quickly is sometimes the only reason to refinance an auto loan. Beware of the higher interest rates, though, as most lenders charge higher rates on older vehicles.
When you are looking to refinance your old car, you may be surprised at the interest rate available to you compared to what you received when the car was new or nearly new.
The bottom line
Consider all your options before committing to refinance your car and check to see what interest rates are available. Keep the loan term as short as your budget will allow. Getting the shortest loan term combined with the lowest interest rate will guarantee you the best car loan possible.
Do you have any other questions? Regardless of whether you have debt or credit issues, our agents are here to provide information and explain your car loan options.
Have you thought about giving us here a self-loans.ca a call? For every question we receive the same decision-making process, which means that no matter how bad your credit score is, you will receive the same degree of attention and care as everyone else.