Usually, refinancing is for businesses or mortgages but you can refinance a car loan too. It doesn’t always make financial sense but when it does, it can save you money. So what is car loan refinancing and when does it make sense to consider it?
Refinancing a car loan just means applying for a different loan to pay off the original. It isn’t as complicated as it may seem and your dealer or financial consultant can probably do it for you in less than an hour.
When does auto refinancing make sense?
This form of finance isn’t for everyone and may not always be the best route forward. Whenever you’re considering making decisions like these, it makes sense to discuss it with an expert first.
Auto refinancing could make sense if:
Your car is less than 6-7 years old.
It’s a premium model with a significant amount outstanding.
Is your personal car and not your business car.
The interest rate being offered is less than what you’re paying now.
The term of your loan is longer than usual.
In any of these situations it may be worthwhile exploring refinancing as it could save you money. That isn’t always the case though.
When auto refinancing is not a good idea
As with any financial commitment, not every loan or arrangement is going to be suitable for every situation.
It may not make sense if:
You’re almost at the end of your existing agreement.
Your current loan has early repayment penalties.
The refinance has setup fees.
You don’t want to add more time to a car loan.
If your car loan has only a year or two to go or includes early repayment penalties, it is unlikely to make sense. If the product being promoted has setup fees, they may be more than the saving you would make and if you don’t want to have longer to pay off your loan then refinancing may not be for you.
If you’re having difficulties with your current arrangement or want to explore alternatives, talking things through with an expert is vital. There is a lot to consider in any car loan or refinance product so make sure you know what you’re getting into before you sign!