Should You Go For Car Loan Refinancing?
A car loan refinancing is the process of replacing your current auto loan with a new one from a different lender. Doing so can help you in several ways. It can give you better repayment terms like better rates and loan tenure. You get better benefits, features and terms with a car loan refinancing.
Why should you go for car loan refinancing?
There are several benefits of getting this facility.
It lowers your interest rate: If you do find a suitable refinancing loan with a lower interest rate than what your current loan is giving you, then go for it. With a lower interest, you save more money over time. And, as they say, more money saved is more money earned. All you need to do is to pay off the loan you have at hand and then talk to the new lender. Remember though that prepayment charges for the old loan is lower than the refinancing’s benefit. You may also want to think about refinancing your car loan in case your credit score has improved since the last time you took a loan. If so, you can be eligible for a loan with better interest rates.
It modifies your loan tenure: When you get an auto loan refinancing, you can modify the tenure. This helps you in bringing down your monthly EMI payments. For instance, if you increase the tenure, you can pay over a longer time safely and this brings down what you pay each month. However, this means you’ll be paying more money in the long term. You can reduce your loan tenure. However, here the EMIs shall be higher even though you will be able to pay off the loan faster.
To change the agreement of a co-signer: On refinancing a loan, you can add or remove a co-signer. If your current co-signer does not want to give the lender a loan guarantee, you can remove their financial responsibility.
To change the auto loan terms: If you weren’t happy with the terms of your loan last time, you can use a car loan refinancing to change the terms now. If you get a better auto loan, you can choose to refinance the loan to get all the features.
Things you need to remember before taking a loan refinancing
There are a few things to know about before taking the step of getting a loan refinancing.
Prepayment charges: To get a loan refinancing, you’ll need to prepay the current loan, and in most cases that involves a prepayment penalty. This can range between 1% to 3% of the loan.
Your car’s depreciating value: In case you buy a new car, and think of refinancing the car loan. The value of your car slightly comes down and new lenders may not want to refinance cars and automobiles that are too old. Even if you do get a deal, it may not be a good one.
Reliability of the lender: Getting a trustworthy lender is very important. Don’t go for a refinancing just because of lower interest rates.
Additional fees and charges: If you choose to go for a refinancing, you’ll have to apply for a new loan from another bank. This involves giving some processing fees and additional charges. You’ll need to determine how much these shall be and if these are ok with you, or not.
