Have you recently taken a truck title loan? It can help you financially, especially if you’re smart while dealing with it. Sometimes, your situation might call for refinancing a car loan. You might be wondering if it is good to refinance a car. Therefore, carry on reading to know the pros and cons of refinancing a car.
What is Refinancing a Car?
Refinancing a car loan means replacing the current loan with a new one. The new auto loan helps pay off your original loan while you start to make monthly payments on the new one.
The Pros & Cons of Refinancing a Car Loan
There are many advantages of refinancing your car loan. These include lower monthly car payments, reduced interest amounts, and shorter loan terms.
The drawbacks of refinancing a car loan include fees and possibly increased payment than the car’s worth. In addition, you might have additional interest upon extending the term or cashing out equity.
Is it Good to Refinance Your Car?
Here are some pros of refinancing a car loan:
1. Pay Less in Interest
If you have managed to improve your credit, you might qualify for a lower interest rate. Plus, consistently making on-time payments for six to twelve months boosts your credit.
2. Lower Monthly Payment
If your monthly car payment is higher than your budget, refinancing can help reduce it. This way, you can make other payments and pay for the higher-rate debt. Furthermore, you can avoid falling behind on your payments.
To reduce the monthly payments, you’ll have to extend your loan term. This might require more interest over the life of your loan.
3. Pay Off Loan Earlier
Did you have an increase in your income after buying your car? You can consider paying off the car loan sooner by refinancing it to a shorter term and lowering the interest rate. You can pay extra on the current payment. Nevertheless, refinancing will help you save more.
What are the Cons of Refinancing Your Car?
As much as there are pros, there are always cons to refinancing your car. These are:
1. Increased Interest
Refinancing your car might backfire. You may be refinancing the loan to reduce your payment. But you might have to spend more money on the additional interest payments. The reduced rate might not offset the cost of interest payments for an extra year or two.
Another con among the many cons of refinancing your car is the fees. Hence, you should consult your current lender to ask if you’ll owe a payment penalty since you’re paying off the loan early.
Some states charge fees when you re-register your car or transfer the title. Additionally, your refinance lender might ask for application fees.
3. You Might Owe More
If you refinance your term or take cash out of your equity, you might owe more than your car’s worth. Therefore, you might have to make up the difference when you sell or trade your vehicle. This difference might add up to thousands of dollars!
What to do?
There are both pros and cons to refinancing a car; you just have to consider if it is the right decision for you. Contact Advantage Finance LLC at (281) 410-5337 for more information regarding motorcycle and truck title loans.