While you are searching the web for a solution to your struggling car loan repayments, you have probably come across the phrase ‘refinancing a car loan’.
This refers to an alternative way of paying your existing car loan by taking another secured loan with different terms from a different lender. The new loan has a fixed interest rate and is usually taken against the vehicle.
To find out if refinancing your car loan is something that will help your finances, it’s best that you read on first.
Why refinance a car loan?
The primary reason why a borrower would refinance a car loan is to save on monthly loan repayments, either by getting a lower interest rate or by extending the loan term. Although, some people would also get car loan refinancing to take-out or bring in co-signers, or to deal with a better bank or lender.
How does it work?
When you get approved for a car loan refinancing, the new lender will loan you the remaining total balance on your existing car loan. Using the loaned money, you will be able to pay off the car loan completely. On the other hand, you will enter a different contract with the new lender. With the refinance loan, you may or may not get a lower APR and longer loan term, depending on your credit score.
What are the benefits of refinancing a car loan?
There are many benefits that you can get from refinancing your car loan:
- Lower interest rate – If you have a good credit score, the new lender can give a lower interest rate on the refinance loan compared to the first car loan. A lower interest rate will lessen your monthly repayments and help you save money in the long run.
- Longer loan term – This is another benefit of refinancing a car loan that can lower your monthly dues. By getting a new term for the refinance loan, the loan amount will be divided by more number of months and therefore will lead to much lower monthly repayments.
- Ability to remove or add a co-signer – Due to some personal reasons, people may want to remove a co-signer from their loan. This is possible when refining a car loan. On the other hand, you will also be able to add a co-signer, which can help you get a lower interest rate if you have a bad credit.
- Have a new lender – Some lenders can be difficult to deal with. For people who have bad experiences with their lenders, getting a new one is a very good solution.
Are there any disadvantages?
Although refinancing a car loan has many advantages, it also has some downsides that you need to consider.
First, because the length of the loan is extended, the number of interest payments will also increase. This will end up with you paying more interest over the loan term.
Second, you will need to pay another set of transactions fees for the refinance loan. Lastly, you may need to pay penalties to the old lender for paying off early the car loan, depending on your contract.
Refinancing a Car Loan with Aussie Car Loans
Refinancing your car loan can be very beneficial if you find the right lender that will fit your needs.
At Aussie Car Loans, our experts will help find the best car refinance deal that will save you money.