June 27, 2017 by Space Coast Credit Union
If you’re considering refinancing a car, learn more about the advantages and disadvantages first. This will help you to make the best decision for your budget and needs.
Advantages of Auto Refinance
First, you can sometimes lower your interest rate. If so, that’s typically a great reason to refinance, especially if you don’t have to pay an application fee. This can be especially appealing if, when you originally bought the vehicle, you had no credit and were therefore charged a higher rate. Or, if you previously had credit problems (and were charged a higher rate) and have since rectified them, this is also an ideal situation for auto refinance.
When you lower your rate, you can get a lower payment—and, if you extend the term of your loan at the same time, the payment will be even lower. This can be a good strategy when your life circumstances change, such as when you have a baby. Or, you can refinance but continue to pay the higher payment and thereby pay off your loan faster, which ultimately saves you money on interest.
Finally, you can boost your cash flow as long as what you owe on the vehicle is less than its current value. If, for example, you owe $5,000 on your vehicle but the current value (initial value minus depreciation) is $10,000, then you could refinance and get cash back. You might want to do this if you have medical bills you want to pay or a small home improvement project in mind. The rate that you would get to borrow this additional sum would be lower than if you used a credit card.
Disadvantages of Auto Refinance
If your new loan comes with a prepayment penalty, then you can’t pay your loan off early, which can cause you to pay more over the lifetime of the loan than you’d planned. If your new lender charges significant fees, including but not limited to the application fee, those can add up and negate benefits that you’d gain from refinancing. Finally, if you’re in a short-term cash crunch, refinancing a car may seem like the best solution. If, however, you extend the term to lower your payment and free up some cash, you’ll increase the payback amount. So it may make sense to talk to a lender about whether there are better options to get the cash you need.
When you refinance your auto loan
from another lender with us, you can receive low credit union rates with NO application fee. We provide fast approvals and online closing options for convenience. Here is what one satisfied customer had to say about our auto refinance program:
“... called to inquire about a loan refinance on a recently opened loan at the dealer that I could refinance 30 days after origination. The bank representative followed up as promised, reviewed previously provided information and got back to me a day later with my approval, better rate and cash incentive. All documentation was done online, I was able to sign from my phone and got everything squared away without leaving my desk.”