> Vehicle Refinancing Overview
Vehicle Refinancing Overview
What are the Benefits to a refinance vehicle loan?
Vehicle refinancing is similar to mortgage refinancing. When you refinance a home loan, you are paying off one loan with another loan for the
reason of saving money, lowering your interest rate, or taking cash out. An auto refinance loan is very similar, except that you
genearlly don't take cash out when you refinance a car. When you refinance a vehicle loan
, you have the opportunity to save money, usually
over the short term or in the long run, but usually not both.
Lower Interest Rates
With a refinance vehicle loan can get you a lower interest rate for the following reasons:
Lower Monthly Payments
- Time has passed and your credit has improved.
- You have paid down your credit cards or other debt since the closing of your current car loan.
- Your steady income has increased, thus changing your debt-to-income ratio to a more favorable number.
- Average interest rates for auto loans have decreased, much like mortgage loan rates often do.
An auto loan refinance is the ultimate way to lower your monthly car loan payment
, but the following points must be
considered when refinancing for this reason:
- Payments generally go down because the life of the loan is increased.
- This means you pay less month-to-month, but can end up costing you more in the end.
- Depending on your credit rating and financial situation, your interest may not change, or may even increase.
- You may want to consider other options if you goal is a lower monthly payment. Look into a home equity loan or home refinance, which come with on-average lower interest rates and longer repayment terms.
- If lowering your payment is your only goal and your car is in good shape to last a few more years, stretching the loan term is the easiest way to bring your payment down.
While the theory behind them is very similar, there are many differences between home loan refinancing and auto loan refinancing. One of
the big differences is that you don't need an appriasal on your car to refinance it. Auto loan refinancing
is based on your payoff
balance. Mortgage refinancing is based largely on the home's equity, which is why your house needs an appraisal whenever the financing
is to be changed in some way.
Let's say that your existing car loan was for $15,000 with a 13% interest rate. If you have 48 months remaining on the loan and you
are able to refinance at a rate of 10%, you will save $1,000 over the life of the loan.