#refinancing auto loan
Pros and Cons of Refinancing a Car Loan
By Emily Delbridge. Car Insurance and Loans Expert
Emily Sue Delbridge has a strong family history in the insurance industry. She has been in the insurance business since 2005 with her primary focus on personal lines insurance. Read more
Refinancing a car loan can seem appealing at times. It is important to take a close look to make sure you will benefit from refinancing. Refinancing has both pros and cons depending on your situation. Making educated decisions about your finances will keep you on the right track to financial well being.
Pros of Refinancing a Car Loan
- Get more money out: If you currently owe less than what your vehicle is worth, you may be able to access more money by refinancing. For instance, you have owned your vehicle for three years. Your vehicle is currently worth $8000 and you owe $5000. You need money for a small home improvement. One option would be to refinance your vehicle for $6500. You will still owe less than what the vehicle is worth and have $1500 after the new loan pays off your previous $5000 balance. The $1500 can now be used for your home improvement.
- Lower your payments by extending the loan: Sometimes a life changing event such as a baby or medical expenses put you in a situation where you absolutely have to reduce your monthly expenses. Refinancing can allow you to extend your loan. For instance, if you owe two more years on your current loan, it may be possible to refinance for four years. Adding two years onto your loan should substantially lower you monthly payments depending on the interest rate you get. You will be paying for two years more, but you will free up some cash on a monthly basis helping you get through a rough patch.
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- Change Lenders: Changing lender can be a pro or a con depending on the relationship you have with your lender. If your lender is tough to contact or is not getting you your payment information, changing lenders could be a pro. If you like your lender, you can try to refinance with them however you may need to look elsewhere to get the best rate.