There are so many auto loan pros and cons that have made so many people wondering over the years whether to forget about auto refinancing, so we have decided to clear your doubt.
But First we would let you know what refinancing is,
What Refinancing means
When you refinance, you replace the old loan with a new loan that pays off the debt of the old loan.
1 The new loan will have improved terms or features that boost your finances.
2 The details of what the refinancing looks like depend on the nature of loan and your lender, but the procedure usually unfolds as follows: You have an existing loan that you would like to improve in some way.
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You look around for lenders and find one that provides better repayment plans than your old loan. You apply for the new loan. If your loan is accepted, the new loan pays off the outstanding debt entirely. You pay interest on the new loan until you pay it off or refinance it.
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The Pros Of Auto Loan:
When You Refinance a Loan, Although a new loan might lack attractive features of an existing loan, refinancing has several potential benefits:
1. Lower your monthly payments: Refinancing your auto loan may decrease your monthly bills by lowering your rate of interest and/or broadening your loan term.
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2. Decrease the total rate of interest you pay on your car loan: Refinancing your auto loan to a lower interest rate and/or a shorter term can reduce the amount of interest you pay.
The obvious cause for refinancing is to reduce interest payments; to do so, you typically need to refinance into a lender with a lending rates that is lower than your existing rate by qualifying for a lower rate based on market conditions or an improved credit score. Lower interest rates typically lead to lower interest costs and substantial savings over the life of the loan, especially with large or or long-term loans.
3. Adjust the loan term.
While you can extend repayment to increase the term of the loan (but potentially pay more in interest costs), you also can refinance into a shorter-term loan. For example, you might want to refinance a 30-year home loan into a 15-year home loan that comes with higher monthly payments but a lower interest rate.
If you have several loans, consolidating them into one loan might make more sense, particularly if you can get a lower interest rate. One loan makes keeping track of the transactions easier.
5. Change your loan type. If you have a variable-rate loan that causes your monthly payments to fluctuate as interest rates change, you might prefer to switch to a loan at a fixed rate.
A fixed-rate loan offers protection if rates are currently low but are expected to rise and results in predictable monthly payments.
6. Lower your monthly payments. Whether you lower the interest rate on your loan or extend the amount of time you’ll take to repay it, your new loan payment will most likely be smaller than your original loan payment because you will have lower interest costs or more time to repay.
7.The end result is sometimes a healthier monthly net income and more funds needed in the budget for other essential monthly expenses. Pay off a loan that’s due. Some loans, especially balloon loans, have to be repaid on a given date, but you might not have the available funds for a large lump-sum payment.
In those cases, it might make sense to refinance the loan using a new loan to fund the balloon payment in order to gain more time to pay off the debt. For example, some business loans are due after just a few years but can be refinanced into longer-term debt after the business has established itself and shown a history of making on-time payments.
The Cons Of Auto Loans:
Refinancing is not just about gains and importance most of the times, there are disadvantages in auto loans
We have listed them below:
Costs of transactions:
Refinancing can be costly. While costs may vary by lender and state, borrowers may be expected to pay anywhere between 3% – 6% of the unpaid principal for refinancing fees, which can include processing, origination, valuation and inspection fees and closing costs. For large loans such as home loans, closing costs can add up to billions.
Higher interest costs:
Refinancing will shoot in back. You pay more interest on your mortgage when you push out loan payments over a prolonged timeframe. You may enjoy lower monthly payments but the higher lifetime cost of borrowing can reduce that benefit.
Lost benefits: Some loans have useful features that will be eliminated if you refinance. For example, federal student loans are more flexible than private student loans if you fall on hard times, offering deferment or forbearance plans.
You will pay more interest over the length of the loan: Sometimes you can refinance with a lower interest rate, but because the loan is extended you will actually pay more over the length of the loan. Use a loan calculator to make sure you know whether or not you are saving money overall.
Getting the lower monthly rate might be what you are looking for, but if you really want to pay less overall it is important to do the math.
Pay a higher interest rate: Getting cash fast is sometimes the only reason for refinancing a car loan. Beware of higher interest rates though, because most lenders charge higher interest rates on older vehicles.
If you go to refinance your aging car, you might be surprised at the interest rate available to you. It is often a lower rate than a credit card though because your vehicle is being used as collateral.
You must take all your options into consideration and you need to do your research before refinancing a car loan. Shop around and see what interest rates are available bearing in mind that auto loan pros and cons exists.
Think about your plans and how long your loan will last. Seek to match the shortest loan term with the lowest interest rate, if you can.
Once you shop, apply for an auto loan with Refiyourauto and you’ll be ready with the awareness of your monthly payment and overall cost of financing the car of your choosing. Apply online, by phone or using your computer.
In Conclusion, this is to tell you that auto loan pros and cons when looked from another angle, the advantages are far much better than the disadvantages, you can always make the better choice as we will always be here to help you when you will be ready, here is our contact