Refinancing does start your auto loan over from the beginning — but it is not a complete restart. By refinancing your loan, you agree to new loan terms and interest rates, intending to save you money in the long run. However, choosing to refinance is not a quick fix for a more serious financial problem that has developed.
Your car loan will be restarted depending on how much you refinance.
Refinancing your loan may be the most advantageous financial decision for you; however, it is important to understand that it is not a complete financial restart. Instead, the new terms that have been offered will make it easier for you to pay off your loan.
How refinancing affects the length of your loan
When financing a vehicle, the most common terms that drivers are presented with a range from 24 to 84 months in length. If you sign up for a longer-term, your monthly payment will be less. However, the length of time your loan will be in effect will be extended. In other words, you could be stuck with the same vehicle for up to seven more years than necessary.
When you refinance your loan, the term length will likely be the most important factor to consider. Although you may be able to obtain a different interest rate, the term change will be the most significant factor. The term can be shortened or lengthened depending on several factors, and the best option depends on the circumstances. Use iLending refinance car calculator to find the term length that will best balance the amount of money you save with the number of monthly payments you can afford to determine your ideal term length.
There are times when it is a good idea to refinance your auto loan.
You should refinance your car loan in a few situations, the most important of which are as follows:
The first scenario is if you are having difficulty making your monthly payment. The process of refinancing, and consequently reworking your current loan, may provide you with an additional year to pay off the vehicle’s purchase price. However, you may be able to request a loan modification from your current lender without having to refinance. Make sure that the terms you would receive from refinancing are better than the terms you would receive from keeping your loan in its current form before proceeding.
Another situation in which refinancing is the best course of action is if your credit has improved since you took out your original mortgage loan. Having better credit will translate into more favorable terms. This is especially true if you obtained your financing from a car dealership in the first place.
How to get your car loan refinanced
If you decide that refinancing is the best option for you, the process will involve some reflection on your current loan as well as the organization of paperwork for your new loan application (if applicable).
• Take a look at your current loan. Find out about the interest rate, the payoff amount, the number of months left, and any fees or penalties that may apply.
• Conduct a credit check. Make certain that your credit score is in good enough shape to qualify for a reasonable interest rate. At the same time, make sure there are no errors in your credit report.
• Shop around for lenders. Don’t settle for the first lender who offers a reasonable interest rate. Examine a few, paying attention to their eligibility criteria, penalties, and the rates and terms that you are prequalified for.
• Apply for refinancing. Once you’ve decided on a lender, you can apply online or in person.
The bottom line is as follows:
When you refinance your auto loan, it does not mean that the loan is completely rewritten. However, it has the potential to lower your interest rate and save you money every month. Before signing a new loan application, think about the risks that come with refinancing and whether there are other ways to save money instead.