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Can Car Loans Be Refinanced?
When you take out a car loan, the terms you decide to commit to are generally the most suitable for the current state of your finances. Over time, however, your financial circumstances may change. Whether you have gone for the better or worse, there may be a point when you will start to consider the possibility of getting your car loan refinanced in a bid to secure a better, more competitive deal than what you have originally signed up for.
What is car loan refinancing?
If you’re curious whether car loans can be refinanced or not, know that there are selected lenders that may offer car refinancing in Australia. Generally, when you get your car loan refinanced, you are taking out another loan so whatever existing balance you have gets paid off and you will start paying off a new loan with a new loan rate involved. Loans of this nature tend to be secured as the car involved will often serve as collateral. The term also involved a fixed monthly repayment for a set number of years.
Why do people refinance their car loans?
There are a number of reasons that motivate people to get their car loans refinanced. The greatest motivation tends to be the possibility of scoring a more affordable interest rate. This is a big thing since this can easily reduce the monthly payments you will need to make, moving forward. This could leave you with more cash that you can then use for covering other expenses.
There are also cases when people are motivated to get a loan refinance not because of the interest rate involved, but of the chance to get a much longer repayment period. This will give them the opportunity to cover lower monthly repayments— something that borrowers may find quite useful, especially if they are increasingly finding their current repayment costs to be a little too expensive.
What are the benefits of car loan refinancing?
Before taking advantage of getting your loan refinanced, it helps to first find out what are the upsides to such a decision.
Lower interest rates – Bad Credit
When you get your car loan refinanced, you will only need to borrow the amount covering your current loan balance. Since you’ve already done some repayments prior, this would have reduced the loan amount you need considerably, which can lead to a more affordable borrowing rate. If you have been making your repayments on time, there’s a good chance that your credit score may have improved as well, which easily leads to better rates.
Reduced monthly payments
In some cases, the monthly repayment you are making for your current carload may be too expensive for you due to changes in your circumstances. Refinancing your car loan may lead to getting a longer term which could eventually reduce the amount you need to pay for every month. Do note that arrangements like these may mean lower monthly payments but could lead to you paying more in the long run.
Improved cash flow
If you ever get approved for a car loan refinancing and you end up paying a lower repayment monthly, it will leave you with more cash that you can use for other expenses. When you are paying less for your car loan, you get more money at your disposal that can be used to cover other bills and a whole host of other financial obligations.
When is the best time to get my car refinanced?
Just because you are considering the idea of refinancing your car loan doesn’t mean you should jump the gun right away use a car finance calculator. There are individual factors you need to consider before making the choice. among these are:
Interest rates have gone down from the time you took out your current car loan It’s common for interest rates to change all the time. So, it’s hardly a surprise if they may have become more affordable since you’ve secured a car loan.
Even a slight drop of 2-3% can have considerable implications to your loan costs. So if there has been a drop in interest rates, refinancing is something you might want to look into.
Your credit score has improved
If you have been diligently making payments on time as far as your existing loans and debts go, there’s a very good chance that your overall credit record has improved. Taking out a loan when you have a good credit score can easily lead to better interest rates which translate to better and more affordable repayments. Terms are also more favourable when you refinance a loan with a better credit score.
Keeping up with the monthly repayments is getting more difficult
Sometimes, your financial situation may have changed but not for the better. In this case, what used to be an affordable enough monthly repayment before maybe a little too hard for you to cover now. A car loan refinancing may eventually lead to a lower monthly repayment, which could be quite useful in your current situation.
Are there downsides to car loan refinancing?
It’s also important to consider the potential downsides of getting your car loan refinanced. For instance, while a car refinance may lead to a lower monthly repayment, especially if you secured a longer payment term, it can eventually mean you paying more in the long run. After all, the loan term can have a significant effect on loan costs. This means that while you are paying less every month, you are actually paying more in the long term.
There is also the fact that a refinance can have a negative impact on your credit. It is a loan you are taking out, after all. This isn’t something you might want to hold off if you have plans of taking out another credit soon. You’ll only likely to end up getting rejected when they will see that you have very recently just applied for a car loan refinancing. As always, weighing in on the pros and cons can help you make sound decisions.