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.

Refinancing Your Loan - When Should You Think about Refinancing Your Loan?

Have you ever taken a personal loan only to find out later that it is not suitable for you? Maybe you found out or decided later that it's too expensive! Well, if that’s your problem, we are going to show you a way out of it: loan refinancing.

Right now, pay cuts and LWPs (Leave Without Pay) have become very common, especially with the advent of the Covid-19. Since your income level has decreased, perhaps you are being forced to cut costs yourself. Maybe you are even in debt, especially when 40% to 50% of your income is going to meet the EMIS of a loan you took earlier. If there are such obligations, you need to stop and reevaluate your options. If you want better terms, look no further than refinancing your loans.

What is refinancing?

Refinancing is the process through which you replace your current loan with a new loan with different, and often better, terms. This new loan is used to pay off the current one, and since the new one has better terms and conditions, it is easier to repay back. You can therefore improve your financial condition quite quickly. Of course, refinancing loans depend on one lender to another, but generally, the process is similar.

• You have a current loan about whose terms and conditions you are not happy with, or which you are finding it hard to repay.
• You approach a lender and ask for a loan with better terms and conditions. You apply for this loan.
• You use this loan to repay the first loan.
• You keep making your EMIs for the second loan and repay it on time.
  

But why should you even think about refinancing?

There are downsides to refinancing, of course. It is expensive and takes time. Additionally, the new loan may not have the best features of the previous one. But despite this, there are many benefits.

1. You save a lot: Refinancing saves you money through interest. The new loan being better than the last one, it comes with a low rate of interest. Otherwise, why would you refinance in the first place, right? Over time, you save a lot of interest in the new loan.
2. Lower monthly payments: Refinancing can lead to lower EMIs, which again saves you money. Thus, you get a better cash flow management and get more funds to spend on other things in your life. Besides, the more money you free up, the more you can use to repay the loan faster. Additionally, the balance is smaller than the last loan, and thus the loan term is longer. This means you pay lower EMIs.
3. Get short term loans: You can opt for short term loans too. For instance, you can convert a 10-year loan into a 5-year loan. This leads you to become debt-free faster.
4. Debt consolidation: If you have a lot of loans, you can use refinance to consolidate all of them into a single line of credit at a lower interest rate.