Refinancing your car loan simply means taking out a new loan with different loan terms (e.g., repayment period, interest rate, and sometimes your choice of lender). The cash from your new loan will be used pay off your old loan, and depending on your situation may also give you some cash in pocket to be used for whatever you might need it for.
There are actually a number of very good reasons for refinancing an auto loan. The number one reason is to lower your monthly payments, either through extending the loan period, paying a lower interest rate, or both.
Other reasons can include lowering the overall cost of the loan (by getting you a lower interest rate or by shortening the repayment period - which would actually drive up your monthly payment amount but make the loan less costly).
However, there are some disadvantages of refinancing a car loan. Here are 5 situations when you should probably not refinance your car:
1. You have a very low interest rate on your current loan:
It makes the most sense to refinance when you believe you can qualify for a lower interest on the new loan than you were able to get when you closed on your existing loan; if you believe that this will not be possible, it may make sense not to refinance.
Remember, though, that you can also opt to change the repayment period through a refinance loan, which may make sense for you (see above) even if you cannot qualify for a lower interest rate.
2. You have very little time left on your loan:
If you have less than a 18-24 months left in payments on your current loan, refinancing may not make financial sense. The money that you stand to save in interest in this case may not make it worth it for you to go through a refinance.
3. You plan to sell the car within the next year or two:
If you believe you will be selling your car sometime soon, a refinance probably does not make sense. Similar to the situation above (#2), you will probably not realize enough interest savings to make the whole thing make worthwhile.
4. You owe less than $7,000 on your car:
Most credit unions, banks and other lenders will not consider offering you an auto refinance if you owe less than $7,000 on your car. This is because they do not stand to make very much money on the deal, given the low loan amount.
5. You bought your current car new:
New car loans generally have lower interest rates than do used cars. Now that your car is used, it may actually be harder for you to qualify for a refinance loan with a lower interest rate than you got when you bought it new.
Unless one or more of the above apply to you, it may make sense for you to refinance. Doing so could potentially get you into lower interest payments, save you money over the life of the loan, or both.
Article Source: https://www.bharatbhasha.com
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Article Added on Saturday, February 4, 2012
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