The term refinancing is often associated with mortgage loans. But if you finance a car through a bank, you can qualify for an automobile refinancing. But before talking with a lender, it's important to understand the reasons for refinancing and the potential consequences.
Definition of Auto Refinancing
Refinancing a car loan requires speaking with a bank or credit union and then completing an application for a new car loan. The new car loan replaces the original auto loan. The new lender pays off the old debt, and you begin making payments to the new lender, with adjusted terms.
Interest Rates
The interest rate on auto loans is determined primarily by credit history. Someone with a recent bankruptcy may qualify for an auto loan but receive a high rate due. If you improve your credit, it may be worth refinancing because a lower rate is possible.
Lower Payment
Building your credit score and getting a lower rate with an auto refinance has a positive domino effect. The interest rate on a vehicle loan influences the monthly payment. Naturally, paying a reduced interest rate can decrease the monthly note on a car loan.
Upside Down
Owing more than your car is worth is considered an upside down vehicle loan. There are options to correct this. For example, you could make higher payments to pay down the balance more quickly; or you can refinance to a shorter loan term and pay off the car as fast as you can. Some auto lenders will not refinance if you owe more than the car is worth, and getting approved may require shopping around and speaking with different banks.
No comments:
Post a Comment