Lifestyle / August 2021

Refinancing a Car Loan: What Does it Mean?

A person holding up puzzle pieces with the words “personal loan” on them.

Getting a car loan can be a exciting! However, when you start to encounter problems with your finances, have a sudden drop in income, need to pay off a car repair loan, or have found better interest rates, you may want to consider refinancing your car loan. Here, we look into the basics of refinancing—how it works, the benefits, and why it pays to know all your options.

What does car or auto refinancing mean?

When you refinance a car, you replace your current car loan with a new one from a new lender. Most people choose to refinance their vehicle to save money by making lower monthly car payments, getting reduced interest rates, or simply adjusting the length of their loan term. All these are good and understandable reasons. However, there are different possible outcomes when you decide to refinance your car, so you want to make sure refinancing will make the most sense to your situation.

Possible outcomes when refinancing your car

Refinancing your car loan can be helpful in some situations. But not all car loan refinance deals are designed the same way. That’s why it pays to make sure you will benefit from refinancing. Here are possible outcomes when you choose to refinance a car loan.

  • • Reduced interest rates

    You may find yourself receiving better offers from lenders once your credit score goes up. It’s worth checking into refinancing your car loan after a couple of years to see if you qualify for lower interest rates. Through this, you're more able to pay off your loan faster or pay less over the life of the loan.

  • • Lower monthly car payments

    It’s possible to obtain lower monthly payments when refinancing a car loan. Many people choose to refinance because of specific situations that may have required them to reduce their monthly expenses. Whether it’s paying for medical bills or having an unplanned pregnancy, refinancing may allow borrowers to extend the duration of their loan, thereby lowering monthly payments. Keep in mind though that changing the length of your car loan terms may permit you to lower monthly payments, but it also means you’ll have to pay more interest over the total life of the loan.

  • • Improved cashflow

    If you have an existing car loan and you owe less than what your vehicle is worth, you may gain access to more cash through refinancing. Imagine a scenario where your vehicle is worth $10,000, you have owned it for three years and you still owe $7,000 on your car loan. When you need some cash to pay off your medical bills or car repairs, one option would be to refinance your vehicle for $8,500. This way, you still owe less than the car is worth but have $1,500 of money available to spend after the new loan pays off your previous balance.

Apply for a loan you can pay off fast!

Short-term loans can be a great way to finance your personal or business needs without the burden of paying off high-interest rates over longer periods. Apply for a quick personal loan online! At MoneyShop, you can access fast and easy loans between $200 to $20,000, and get approval in hours. Get in touch with us today!

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