If you find yourself stuck in a bad credit auto loan paying too much interest or having too much time left to pay, you may want to look into getting the loan refinanced. Here, we’ll look at how the process works and whether or not you should consider it.
The Benefits of Refinancing
On paper, there are some obvious benefits to getting a bad loan refinanced with better terms. If you can get a lower interest rate, you’ll be paying less money for the same car—a huge attraction!
Lower Amount Paid Monthly – One of the more immediate effects of getting your car loan refinanced is that you’ll pay less per month. This can have a direct impact on your monthly budget, freeing up some cash flow and allowing you to have more wiggle room each month.
Lower Amount Paid Overall – Over time, these lower monthly payments will lead to paying less for your car when it’s all said and done. This can be a big help, especially if your used car is depreciating at a faster rate than expected due to an accident or other problems with the vehicle.
The Drawbacks of Refinancing
Refinancing a loan isn’t always a solely positive experience. There are some potential drawbacks that you’ll want to watch out for.
Lengthens the Time of the Loan – In a way, you are hitting the reset button in terms of paying off your old loan and ending up with a new one. You’ll want to make sure that your car’s value doesn’t depreciate faster than your new loan pays it off.
Higher Amount Paid Overall – While it is entirely possible to pay less for your car overall, you could just as easily end up paying more. Make sure that you are very clear about what the total cost will be, and consider your original loan with your new loan added to it. Compare that to the total amount you’ll pay if you just keep your current loan.
Determining Your Eligibility
Not everyone is automatically eligible to have their auto loan refinanced. Your car needs to meet certain requirements, as does your loan. Here are just a few things that are considered when determining whether or not you can refinance your car loan.
Car’s Value, Miles, Type, and Age – Your new lender will factor in how much your used car is worth, how many miles it has on it, what type of car it is, and how old it is. If it doesn’t fit within their parameters, you might not be eligible to be refinanced, or the terms might not be agreeable.
Remaining Balance – If you don’t have enough of a balance left to refinance, they may reject your application. Each lender is different; one lender might have a minimum of $5,000, while another one may need a minimum of $10,000. So just because you get rejected at one lender doesn’t mean you should give up entirely.
How Much Can You Save?
How much you’ll save by refinancing a loan depends mostly on your new interest rate and whether or not you are extending the total length of time for the loan.
For example, if you are able to refinance a $10,000 used car loan, get the interest rate dropped from 10% to 6%, and keep the same five-year payment plan, you would end up saving $1,148. It’s definitely worth the time to research your different options and make a change if it could save you such a large amount of money.
Weighing the Costs and Benefits
In the end, the final say lies with you. You’ll have to determine whether the benefits outweigh the time it takes to go through the refinancing process. Be sure to run the numbers and have someone you trust look them over, and make sure that your new loan is better than the one it is replacing. It may look good at first glance, but a second pair of eyes could point out something you haven’t yet noticed.
Working with the Right Dealership
When you work with the right dealership, you will find that it’s easier to get the right auto loan the first time. That way, you can avoid the process of refinancing. Come see us today at Ride Time, and we will take you through the process one step at a time.