When looking to shave some money off the monthly budget, it’s not uncommon for people to refinance their mortgage.
What some people don’t know is it’s also possible to refinance their car. Most people are able to do it, but just because you CAN do something doesn’t mean you SHOULD. So the question remains….
Should I Refinance My Car
Here’s a few reasons why you may want to:
- Your credit has drastically improved
- Your expenses have increased
- Your income has decreased
Most reasons a person would have are some variation of these three things. The good news is, refinancing your car can lower your payments. The bad news is, there could be some strings attached…
How You Can Refinance Your Car
The ultimate goal for refinancing is lowering your monthly payments (and maybe saving a bit of money in the long run). How it works is you essentially get a new loan that pays off your old loan. You then pay off the new loan.
This new loan doesn’t have to come from the same bank or financial institution as your first loan did. The important thing is that you find a place that will do it and charge you less per month. There are two ways your monthly payment could be lowered.
1. Lower Interest Rates
Was your credit score terrible when you initially got your loan?
Were the market interest rates high?
If you’re paying really high interest on your car loan, refinancing might be able to lower that meaning lower monthly payments and less paid on the car period. You’ll want to find out your current credit score as well as the average interest rate on the auto market.
There’s one more thing you need to check. If you purchased your car new, you may have gotten a special interest rate when you bought it. If so, there’s a good chance you won’t be able to get a lower interest rate.
2. Extend Pay Period
By adding another year to your payment plan, you stretch out the total amount you owe thus reducing the monthly payments.
This option might sound better than it actually is however.
By extending the pay period, you could end up paying more for your car due to collecting interest. Also, since your car is now older than it was when you first purchased it, your interest rates will probably be higher for the loan.
When it comes to extending the pay periods, you should be very careful.
Other Problems with Refinancing Your Car Loan
As I said before, it’s very common for people to refinance their homes. One major difference between homes and cars is that homes often rise in value whiles cars continuously lose value, particularly over the first year or two.
If you refinance on a car you purchased when it was new, you could potentially turn your loan upside. That is, you could end up owing more money to your loan than your car is actually worth.
This could lead to a very bad situation if you either try to sell your car or you wreck your vehicle.
So Should I Refinance My Car or Not?
Ultimately, the choice is yours. Just know, it could potentially hurt you in the long run. The important thing is that you do your research before. Check your credit score. Check the current interest rates. Check the value of your car now compared to when you bought it.
And if you can legitimately lower your monthly payments without hurting yourself in the future, then the option is there for you.
If you’d like to look in to refinancing or just financing a vehicle right now, contact us here and we will get you going!