The Benefits of Refinancing Your Car Loans

You have probably seen advertisements on websites or received offers in your email, but can refinancing your car loans really provide you with any measurable benefit? There are many reasons why you might be interested in refinancing your car loan, and with lower interest rates available on nearly every kind of loan, it is possible that you will realize certain savings. There are 4 key advantages to refinancing your auto loan:

1. Reduce Your Monthly Payment

Even if you maintain the same loan length, if you reduce your interest rate, the monthly payment will go down. However, when you refinance your car, you can also extend the number of months over which you are repaying the loan. While this is not always the best option, if you have recently lost a job or had a significant change in income, lowering the amount of your monthly payment may be an important factor in being able to continue to make all of your payments on time. Work with a lender who will help you determine how long you can extend the length of the loan and still save money at the new, lower interest rate before finalizing your refinance.

2. Improve Your Credit Score

Especially if you are at risk for not being able to pay the old payment because it is too high, refinancing to obtain a lower monthly payment that you know you will be able to make will protect your credit score. The lower payment should be easier to manage, allowing you to ensure that you are able to make each payment on time. Your credit score may actually benefit from a refinance because the old loan will show paid in full on your credit report, which always looks good. If you continue to make the new loan payments on time each month, your credit rating can actually improve.

3. Reduce Your Debt

If you are able to refinance at a lower APR but still maintain the number of months left in the term of the loan, you will essentially be reducing your debt, getting the vehicle for less than you originally planned to pay for it. As well, most auto loans do not have prepayment penalties. This means you can pay off the debt early by continuing to pay more than the payment amount. Once the vehicle is paid off, not only will you have less monthly debt, but you may also be able to reduce the cost of your insurance coverage on the vehicle.

4. Turn a Debt into an Asset

When the vehicle is paid off, which is easier to do under the refinanced terms with a lower APR, it becomes an asset instead of a liability and increases the value of your estate.

Whether you need lower payments because of a change in circumstances or just want to save money with lower interest rates, refinancing your car loan can offer you many financial benefits.

 

 


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