Buying a car can be an expensive feat, especially if it’s your first. There are also many additional expenses that come with car ownership, such as insurance and gas. The good news is that refinancing your car purchase can help ease the financial burden associated with buying a new or used vehicle by lowering the interest rate for your loan.
Not only has refinancing made things easier for individual consumers, but it also has the potential to increase profits for auto lenders and manufacturers. The following are some of the most common benefits of refinancing your car loan.
Negotiate A Better Interest Rate
Refinancing your car loan will result in a lower interest rate. Simply put, your loan balance is split into two parts: the principal amount and the interest amount. A lower interest rate results in you paying less interest each month; ultimately improving your credit score.
You can also save money by extending your term or paying extra on your new loan to pay off the principal faster. In either case, refinancing allows you to keep more of your hard-earned money every month.
Get Cash Out
A second benefit to refinancing your car loan is that you may be able to get cash out of your refinance. This can be very beneficial for people who are looking for some extra money for a down payment on a new vehicle.
It can also come in handy if you are planning a vacation or would like to pay off other bills. It’s important to note that not all auto lenders allow you to refinance and take out cash, so make sure that this is one of the options available with the lender you choose.
Lower Your Payments
The last major benefit of refinancing your car loan is that it will result in lower payments. This is true even if you don’t get cash out of your refinance. Let’s say that you had an original loan for $20,000 with a payment due every month of $500.
The interest rate on your loan was 5%. With refinancing, you can lower your monthly payments to less than $400 per month, which means nearly $100 of extra cash in your pocket every month.
Cut Your Interest Costs
Refinancing allows auto manufacturers and lenders to save money on interest costs as well. You can get better rates on your bad credit car loan and saves a huge chunk of money.
Your new loan could be used for any purpose that isn’t prohibited by law. So long as the total value of what you purchase with this new loan doesn’t exceed the fair market value of your existing vehicle, you can put as much or as little money towards it as you desire.
If you have poor credit, refinancing your car loan could help repair it. Not only does refinancing make it easier for you to pay off your debt, but it also shows lenders that you are able to handle credit responsibly. This can allow you to become eligible for loans in the future, thus making it easier for you to rent a house or get a business loan.
The Bottom Line
Sometimes something extra is needed to make your life easier or just plain more comfortable. Refinancing your car loan can do just that. The benefits of refinancing are not limited to a few people; they are available to all who use car loans and credit cards responsibly.