By admin 
When you refinance a car loan, you’re taking a new loan and using those funds to pay off your old loan. Ideally, this will allow you to secure better loan terms. That way, you can start feeling more in control of your finances.
Here are five benefits of refinancing a car loan and how to decide if it makes sense for you.
1. Lower monthly payments
When you refinance a car loan, you may be able to find a loan with lower monthly payments. This can help improve your monthly cash flow, provide opportunities to save for other financial goals (like an emergency fund or retirement) or enable you to meet other financial needs more easily.
Just keep in mind that a lower monthly payment may result from a longer loan term. If you’re making payments for a longer period of time than your current loan, you may pay more interest than you were before.
You’ll need to weigh your options carefully to ensure you’re getting the type of savings you need.
2. Lower interest rate
If your credit has improved since your initial loan application (or rates have dropped significantly), you may be able to qualify for a lower interest rate on your refinanced loan. Over time, that can add up to major savings — particularly if you have a lengthier repayment timeline.
For example, if you have an 8% APR on a $25,000 loan, you might pay about $3,200 in interest over a three-year period. If you had a 6% APR, however, you might only pay $2,380 in interest during that time. (Keep in mind, however, that this doesn’t account for any fees involved with getting a new car loan, such as origination fees and title transfer fees.)
3. Co-borrower changes
When you refinance a car loan, you have the opportunity to change other terms of your loan, including adding or removing a co-borrower.
For example, if you want to try to get better terms but your credit hasn’t yet improved, adding a qualified co-borrower may help. Or, if you need to remove a co-borrower from your existing loan, refinancing will let you make that change. This can provide some relief for the co-borrower whose financial situation or relationship to you may have changed since the original application.
4. Tap into your car’s equity
Refinancing can also allow you to access some of your car’s equity in what’s known as a cash-out refinance car loan. Here, you’d increase your loan amount when you refinance, allowing you to pocket the difference. This can be helpful if you have a financial emergency and can’t pay for it in cash. However, there can be drawbacks, such as the extra costs you’ll pay, long-term.
5. A new lender
Sometimes you might want to change your loan so that you can work with a different lender. For example, if you’ve found that your lender’s customer service doesn’t meet your needs, you might switch to a lender that has positive customer reviews. That way, you may use refinancing to create a borrowing experience that better aligns with your needs.
However, it’s still important to do the math to ensure you’re getting a good deal. (A loan calculator can help.)
How to decide if refinancing a car loan is right for you
Refinancing a car loan can make sense if it helps you save money or otherwise improve your financial situation. For some, that might mean a lower monthly payment or APR, and for others, it might mean dropping a co-borrower or working with a lender they’re more comfortable with. Understanding your goals is a good first step to determining if refinancing is right for you.
Some of the other factors you may consider include:
· Equity: Positive car equity, meaning the car is worth more than you owe, may help you qualify for better loan terms when you refinance. If you have negative equity, however, you may have a difficult time finding a new loan that works better for you.
· Refinancing fees: You may pay fees, such as prepayment penalties on your old loan or origination fees for your new loan, when you refinance your car loan.
· Timeline to loan payoff: Refinancing may not make sense if you’re close to paying off your auto loan, since there’s less opportunity to save on interest.
· Credit: If your credit score has improved since you first applied, you may be able to qualify for more favorable loan terms when you refinance. Likewise, if it’s gone down, you might want to reconsider until your score is healthier.
If you decide that refinancing makes sense for your auto loan, you can then focus on finding a loan that offers what you’re looking for, whether that’s interest savings, a lower monthly payment or something else.
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