Refinancing Car Loan - Chalonnation

Refinancing car loan offers the potential for lower repayments, but what exactly does it mean to refinance your car loan, and how do you begin?

It’s a great feeling to pay down a significant portion of your car loan. However, even if you’ve made substantial progress, refinancing could still provide savings on your regular payments.

What is Car Loan Refinancing?

Refinancing Car Loan involves changing your lender or modifying your loan agreement with your current lender, often resulting in a lower interest rate.

If you have a fixed interest rate on your current car loan, your interest rate and repayments remain unchanged throughout the loan term. Refinancing can be advantageous if your circumstances shift or interest rates decrease, potentially allowing you to benefit from lower rates.

How Does Car Loan Refinancing Work?

When you refinance your existing loan with a new lender, the new lender provides the funds to pay off your current loan. Subsequently, you make regular payments to the new lender based on the terms of the new loan agreement.

Why Consider Refinancing Car Loan?

Refinancing can be beneficial if you are seeking better terms, greater control over your loan, or if your circumstances have changed.

Pros and Cons of Refinancing Car Loan

Pros:

Lower Interest Rate: Lock in a lower interest rate, potentially reducing your monthly payments.
Extended Loan Term: Extend your loan term to lower payments and allow more time for repayment.
Adjust Joint Borrowers: Add or remove a joint borrower based on changing circumstances.
Change Lenders: Switch to a new lender if your current one isn’t meeting your expectations.

Cons:

Increased Interest Costs: Extending the loan term to lower monthly payments could result in higher overall interest costs.
Fees: Be aware of potential entry and exit fees associated with refinancing.
Lender Features: Ensure your new lender offers the features you need, such as the option to repay the loan early.
Reduced Borrowing Power: Changes in lending criteria may limit the amount you can borrow compared to your original loan.

When to Consider Refinancing Car Loan

Consider refinancing when:

Your circumstances change.
You want to reduce your monthly payments.
You’re seeking a better loan deal.

Before proceeding, consult with your current lender, who may be able to assist based on your situation.

How to Refinance a Car Loan

Follow these steps:

Obtain Pay-Out Figure: Contact your current lender to determine the outstanding loan amount and inquire about any early exit fees.
Evaluate Options: Compare different lenders, loan terms, and associated fees.
Submit Application: Provide necessary documents to support your application.
Pay Off Current Loan: Once approved, your new lender will typically pay off your existing loan on your behalf.

Impact on Credit Score

Refinancing may temporarily reduce your credit score due to a credit inquiry by the new lender. However, making timely payments on the new loan should improve your credit score over time. Be cautious about applying for multiple loans within a short period, as this can negatively affect your credit score.

While refinancing requires careful consideration, it can be a viable option to reduce monthly payments and improve short-term cash flow.