In order to purchase a new vehicle, many of us need to utilize an auto loan. Since most auto loans last from three to five years, there is a lot of time for changes to occur, like your credit score improving. Having the option to refinance your auto loan can provide you with many benefits.
Lower Interest Rate
One of the biggest advantages of refinancing an auto loan is that it allows you to get a lower interest rate. This typically happens when you improve your credit score or when lenders have specially lowered rates on their auto loans. Either way, you can opt for getting your loan refinanced at a lower rate, so you’re paying less interest on the loan.
Lower Monthly Payments
According to Lantern by SoFi, “You may also consider refinancing your car loan when you can’t keep up with payments for your current loan.” The trick to auto loan refinancing is to request a longer-term length. This facilitates you to spread out the cost of the loan over more years than you had initially set up, which will lower your monthly payment amount.
Quicker Payoff Period
When you first got your vehicle loan, you may have set it up for a term of five or even seven years. Now, since you can afford to pay more towards that loan, you may opt to refinance it for a shorter term length. This is a great idea when you’re sure you have the monthly funds to pay a higher bill and you are able to couple your refinance with a lower interest rate.
To Remove a Co-Signer
If you currently have a co-signer on your loan, anything that you do with your auto loan can affect your credit score. Sometimes, auto loan lenders will allow the co-signer to fill out a release form and relinquish themselves from the loan altogether. In other cases, they may not.
You may need to completely refinance the loan under your own name so that the old loan with your co-signer can be fully paid off.
You Want to Pull More Money Out
Undergoing the process of auto loan refinancing doesn’t just have to be to get a lower rate or monthly payment amount. Rather, you can opt to utilize refinancing to pull out more cash from your car. This is commonly known as a cash-out auto loan refinance.
This only works in instances where your vehicle is worth more money than the current auto loan that you have out on it. Let’s say your car is worth $20,000, and your auto loan is for $10,000. An auto loan lender may allow you to refinance your loan for the entire $20,000 so that you can get $10,000 back in cash. Realize that this is going to increase your monthly payment on your car loan.
Auto loan refinancing is a great tool to have so that you can alter your finances in a manner that suits your requirements at the current moment.