Refinancing your vehicle can be really smart.
WHY IT’S GREAT
The benefits fall into two categories: money now, and money later. However, the best way to approach it depends on you.
It’s easy to learn how refinancing works before you sign on the dotted line. RoadLoans has created this infographic to explain some of the mechanics of refinancing your car.
LEARN THE ROPES
Refinancing is ideally done at a time when interest rates are lower than they were when the loan was originally established. Since you might start a new loan with a lower rate, there could be less interest paid on the new loan than there was on the old one, possibly giving you a lower monthly payment.
However, there are other ways to refinance. If you need cash right now, you can ask your new lender to keep the monthly payments at the existing level, and just give you a lump sum of cash that makes up part or all of the difference, given a lower rate. This is called a “cash-back refi”.
Either way, there’s a chance that you may be able to skip a payment entirely, and just start paying again in the month following the closure of the refinance.
One very important thing to understand is the length, or “term”, of the loan. Since refinancing establishes a new loan, lenders are able to offer a loan with a longer term, using your existing car as the collateral. This may mean that you can borrow MORE than just the amount that pays off the remainder of the original loan. You would be paying monthly payments for longer than you would if you didn’t refinance, and paying a higher total cost for your vehicle.
To make sure that you’re not overpaying, calculate the overall amount (including all remaining payments) you would pay with the old loan, and compare it with the overall amount that you would pay with the new loan, including any cash back. If you’re paying more in total by refinancing, but you’re not receiving that difference in cash (as with the “cash-back refinance” option mentioned earlier), then you should renegotiate or reconsider if refinancing is right for you.
So, if you’re considering refinancing your vehicle, then learn all you can, write down any questions, call the company you’re thinking about working with, make sure you understand the process perfectly, and finally, take advantage of these low interest rates, and refinance to save money or get cash back.
Written by Sonny Bynum