Refinancing your car essentially means paying off your first car loan with a second one. The new car loan is often from a new lender. There are many reasons that people choose to refinance a car.
In this article, we’re going to take a look at all the pros and cons there are to refinancing your car to help you decide if this is the right choice for you. Take a look below to find out more.
The Pros of Refinancing Your Car
The advantages of refinancing your car are plenty. We have summarized a few of the key pros of doing so below.
Better Loan Terms
One of the most popular reasons that people choose to refinance their vehicle is because they can now get better loan terms. This could mean you’ve spent a few years getting your finances in order so that you can remove a co-signer, or you have improved your credit score so can now negotiate better terms.
Lower Interest Rate
Switching lenders may also help you to get better interest rates. This will have a positive impact on the cost of your monthly payments and could make keeping up with those payments a little easier. We highly recommend shopping around before committing to a new loan to ensure you have found the best deal out there.
Could Pay Off Your Loan Sooner
You may have had a change in income or monthly outgoings that has freed up a little extra cash meaning you can now afford to pay more each month towards your car. If this is the case, refinancing gives you the opportunity to reduce the length of your loan. This is particularly useful if you don’t like the idea of being in debt.
Could Be an Extra Source of Cash
Sometimes, your car is worth more than you have left to pay on your current loan. If this is the case, you could be eligible for what is known as a cash-out refinance loan. This means when you refinance your car, you can borrow a little bit extra based on the value of your car. Having an extra stash of cash could be useful for other debts or for use in emergencies.
The Cons of Refinancing Your Car
While there are many advantages to refinancing your car with a car finance and loan company in Markham, there are potential drawbacks you that should consider before going ahead with it. We’ve examined them below to help you understand the full situation a little better.
Sometimes, you will incur penalties if you try to end a loan early. Check out your contract first to make sure that you won’t have to pay steep fees if you want out of your loan.
Need to Find a New Lender
It seems obvious, but you will need to find a new lender for a new car loan. As with the first time you found a car loan, you will need to consider the requirements and whether you are attractive to car loan lenders.
Effect on Credit Score
Unfortunately, refinancing your car will have an effect on your credit score. When you choose to take out a new loan, your credit score dips temporarily because it requires a credit check. The effect can take up to two years to reverse itself, so you should consider this before refinancing.
So, Is Refinancing My Car Right for Me?
Just because you can refinance your car, it doesn’t mean you should. However, there are some cases when it can be a good idea, and we have gone over them below.
Change in Financial Situation
Sudden changes in your household income can have a huge impact on what you can pay for your car. If you or your partner has suddenly lost their job or is working fewer hours, it could be a good idea to reduce your outgoings by refinancing your car.
You Want to Reduce Your Debt
Most people hate the idea of being in debt, so if your goal is to reduce the amount you owe, refinancing your car can help you. You can reduce the length of your loan to get yourself out of debt a little quicker.
You Can Get a Better Loan
If your first loan was taken out at a time when your monthly income was low or your credit score was bad, you may think about refinancing once you are in better shape financially. After working on your credit score or getting a promotion, you are more likely to get better loan terms, better interest rates, and lower monthly payments.
Do You Want To Buy a Used/New Car and Need a Loan? Call Car Loan Masters!
As with all financial choices, it is best to weigh up the pros and cons of refinancing your car thoroughly before doing so. If you are looking for a car finance and loan company in Markham to refinance your car, why not get in touch with Car Loan Masters today? We can have you approved in under 20 minutes and we even take on borrowers with low or no credit.
Contact us today to find out more.