A car loan can be refinanced just like a mortgage or any other loan. Sometimes, it’s even in your best interest to do it. But, before you do it, you have to understand that refinancing a car loan comes with both pros and cons. It can both help you and hurt you, especially if you’re not careful.
Being responsible and well informed is the best way to take care of your finances. Without further ado, here are the pros and cons of refinancing a car loan.
Pros of refinancing a car loan
The main reason to refinance any loan is to save money. Lowering your interest rate can do that. If your credit score has improved since you first got the car loan, it might make sense to refinance it. You will be able to get a lower interest rate, save some money and repay your loan a lot faster.
You can also save money by lowering your monthly payments. Refinancing can allow you to extend the loan and pay less each month. It will take you longer to get rid of the loan, but your monthly expenses will be lower.
Additionally, refinancing can also put some money into your pocket. If you owe less than what your car is worth, you can take out a loan for more than what you owe, pay everything off and then still have some money left, which you can use to improve your home or for other investments.
Cons of refinancing a car loan
If you refinance and extend the life of your loan, you might end up paying more. That’s why it’s so important to use a loan calculator before refinancing, to see if it can help save money or not. Getting a lower monthly rate can be extremely beneficial, but, if you want to pay less overall, you need to do the math first.
A lot of people also refinance just to get some cash fast. But that cash could come with higher interest rates, and this is something that you should really avoid.
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. Think about your budget and the length of your loan. If you can, try to get the shortest loan term combined with the lowest interest rate.