Refinancing a Car Loan: What Does it Mean?
Getting a new set of wheels can be exciting! However, when you encounter problems with your finances, have a sudden drop in income, need to pay off a car repair loan, or have found better interest rates, you could consider refinancing your car loan.
This MoneyShop blog post will discuss what it means to refinance a car loan, its benefits, and some tips to keep in mind when considering whether to refinance.
What does car or auto refinancing mean?
When refinancing a car, you replace your current car loan with a new one from a new lender. Refinancing aims to get a lower interest rate, lower monthly car payments, or adjust the loan term length.
However, there are different possible outcomes when you decide to refinance your car, so you want to make sure refinancing will make the most sense for your situation.
Possible outcomes when refinancing your car
Refinancing your car loan can be helpful in some situations. But not all car loan refinance deals are designed the same way. That’s why it pays to make sure you will benefit from refinancing. Here are possible outcomes when you choose to refinance a car loan.
- Reduced interest rates
One of the most significant benefits of refinancing a car loan is the potential to save money on interest charges. A lower interest rate means you pay less in interest charges over the life of the loan, which can add to significant savings. Additionally, suppose you refinance to longer loan terms. In that case, you can lower your monthly payments, making it easier to afford your car.
- Lower monthly car payments
It’s possible to obtain lower monthly payments when refinancing a car loan. Many people choose to refinance because of specific situations that may have required them to reduce their monthly expenses. Whether it’s paying for medical bills or having an unplanned pregnancy, refinancing may allow borrowers to extend the duration of their loan, thereby lowering monthly payments. Remember, though, that changing the length of your car loan terms may permit you to lower monthly payments. Still, it also means you’ll have to pay more interest over the loan’s entire life.
- Improved cashflow
If you have an existing car loan and owe less than your vehicle is worth, you may gain more cash through refinancing. For example, imagine a scenario where your vehicle is worth $10,000, you have owned it for three years, and you still owe $7,000 on your car loan. Then, when you need some cash to pay off your medical bills or car repairs, you can refinance your vehicle for $8,500. This way, you still owe less than the car is worth but have $1,500 of money available to spend after the new loan pays off your previous balance.
What you need to consider
When considering whether to refinance your car loan, remember a few things. First, you must have a good credit score to qualify for a lower interest rate. Additionally, you will need to have equity in your car, meaning the vehicle’s value is greater than the remaining balance on loan. Finally, you should be aware that refinancing a car loan can extend the length of the loan, which means you will be making payments for a more extended period.
Get a loan with MoneyShop
Refinancing a car loan can be a great way to save money on interest charges and lower your monthly payments.
MoneyShop makes the process as easy and stress-free as possible! The MoneyShop team is New Zealand’s most trustworthy loan provider, with competitive rates, streamlined online service, and helpful loan information. Contact our friendly team if you want to talk about small or sizeable fast loan options.