There are several good reasons to justify refinancing a car. It is important to evaluate the pros and cons of obtaining a new loan before moving forward. It will take some research to decide if this is the right move.
Staying on top of financial trends and personal credit scores is crucial for making informed decisions that improve you and your family’s financial standing. With the average price of a new vehicle topping $40,000 in January 2021, there is a lot of money on the line. That means the lenders are lining up to make competitive loans.
The Cost to Refinance a Car Is Nominal or Free in Most Cases
No one can count on absolutes in business, but most borrowers with car loans don’t have a prepayment penalty that hinders them from paying off a car loan early. That’s great news for anyone interested in obtaining a new car loan.
As that old adage states, “the devil is in the details.” That’s why prudent borrowers need to review their current loan paperwork in search of a prepayment penalty before moving forward to look for a new lender. In cases where there is a nominal prepayment fee, it might still make sense to refinance depending on the interest rate and terms of the new loan.
A Lower Interest Rate Is Offered
Let’s face facts. It makes sense to refinance a car if there are better terms available. The lowest rates are offered to customers with high credit scores. Considering how quickly a poor credit score can become a good one, borrowers who were forced to pay a higher interest rate a year or two earlier can often qualify for a much lower rate sooner than they think.
While a lower interest rate might not sound like a big deal at first glance, it can make a significant difference in the amount of interest paid. Since interest is the amount of money borrowers pay to a lender for access to the money, lowering the interest rate always benefits the borrower unless there is a huge associated cost incurred for paying off that old loan.
Considering that borrowers with the best credit might qualify for a rate as low as 3.24%, it is easy to see how a borrower currently paying a rate as high as 13.97% for a car loan can save a significant amount of money in interest charges. For example, a simple $100 per month savings enjoyed over a 60-month loan is $6000 during the term of the loan.
The Monthly Payment Is Lower
Who doesn’t want a lower monthly payment. Even if the interest rate drop is nominal, a lower monthly payment may be possible if the lender extends the term of the loan. A longer loan payout period may be just what the doctor ordered for borrowers who need a little more disposable income each month as family circumstances change.
While 5-year car notes are common, as the cost of cars continues to climb, borrowers can now obtain loans for a period as long as 84 months, especially if they have proven they are good borrowers that pay on time.
Lower payments can come in handy for workers who have seasonal work that dips during certain times of the year. Monthly savings can also pay for family vacations, needed home repairs, or any unexpected emergency that arises.
The Lender Offers Better Customer Service and a Variety of Loan Products
It always makes sense to establish a good relationship with a preferred lender. Borrowers who were forced to work with second and third-tier lenders can benefit by refinancing with an A paper lender.
By establishing a relationship with a bank that works with prime borrowers, then it can open doors for a future home loan, business loan, or education loan at favorable rates. When you have a personal banker who knows your background personally, it can make a big difference in whether a future loan is approved, especially if it’s a marginal approval.
Even a modest credit score upgrade can make a huge difference in the rate offered. There are several factors that can change a person’s credit standing so that they can obtain a better rate.
Credit scores are volatile and can change quickly, upgrading loan options available that include lower interest rates or longer terms, or a combination of both. Saving money is always a practical reason for car refinancing.