Pros and Cons of Refinancing Your Vehicle
Refinancing a vehicle means replacing your existing auto loan for one with different terms. Some people may choose to refinance their car to suit their financial situation better. Before deciding to refinance your vehicle, you should consider the pros and cons to see if it’s the right choice based on your wants and needs.
Pros of Refinancing
Pay Less in Interest
Interest rates can make a big difference in the repayment of auto loans. If you started financing your car with a poor or no credit score (650 or below) and got a sub-prime loan, you probably received a loan with high-interest rates. If you have been consistently repaying your loan on time and notice that your credit score has gone up, you may be able to apply for refinancing and secure lower interest rates to help pay off your car faster. Refinancing may be worthwhile if you can save 1% or more on interest compared to your current rate.
Tap the Equity in Your Car
If you need cash fast for an emergency or some other financial obligation, you may be able to borrow with a cash-out refinance loan using your car’s equity. There are limits and downsides to this, so it is not recommended unless you need the money urgently or have a strategic repayment plan.
Cons of Refinancing
May Wind Up Upside Down
Refinancing may have you paying more for the vehicle than it’s worth. This is known as being ‘upside down’ on your loan. If you take out a cash-out refinancing loan or opt to extend your term, the repayments and fees can add up to cost you more than the purchasing price of the vehicle, even upwards of extra thousands of dollars if you decide to sell or trade-in your car.
Might Have to Pay Fees
Depending on where you are financing, you may need to pay a refinancing application fee. You should always weigh your options to see if these fees are worth the money you will save or receive from refinancing.
Contact Taz Loans for the Best Support!
Do you want to learn more about refinancing? Contact us! As Edmonton’s largest auto dealer, Taz Loans can help answer any questions you may have or walk you through the refinancing process. Feel free also to visit our FAQ page to see if any of your questions about auto financing and loans have already been answered.