The Benefits & Costs of Auto Refinance
You may have heard a lot of positive hype about refinancing home mortgages. But do the same costs and benefits extend to the realm of your vehicle loan?
In the last article, we highlighted why getting your auto loan through a credit union, like Valley Credit Union, can be a winning move. If you want the best service and loan options, it’s really the only way to go.
In this post, we dig a little deeper into the good, the bad, and the ugly of car refinance. You’ll learn more about the pros of refinancing and how doing so could be a smart financial move. You’ll also explore some drawbacks to refinancing your auto loan and things to consider before signing on any dotted lines.
Car Refinance 101
Before weighing pros and cons, it’s useful to make sure you understand a couple vehicle refinance fundamentals.
What is vehicle refinancing?
Vehicle refinancing is the replacing of an auto loan with a new loan in order to change the terms of the contract. Loans are usually refinanced to change the amount of the loan, the size of the payments, length of the agreement, or some combination thereof.
Are there alternatives to refinancing a vehicle loan?
The short answer is: Maybe. Depending upon your objectives for a refinance and your personal situation, there may be some viable options. You can investigate using credit cards, personal loans, or other financial tools. Each has its own pros and cons — it’s just a matter of finding the right-for-you solution.
Assess Your Situation
In many cases, pros and cons are subjective concepts. What works well for one person may be detrimental to the next. Often this is due to variables like an individual’s finances or reasons for seeking a refinance.
Thus, it may help to ask yourself these questions prior to continuing on to the pros and cons.
Am I eligible for refinancing my loan?
The details of your financial profile will tell you this. If there’s any uncertainty, ask your banker for assistance. If you don’t qualify for auto loan refinancing, it may be an appropriate moment to shift gears — explore some of the aforementioned alternatives.
Why do I want to refinance my vehicle loan?
Perhaps your goal is to lower monthly payments. Maybe you’re looking for a quick injection of cash into your savings account. Understanding your motivation is critical because it will impact how you evaluate the pros and cons.
Potential Pros of Refinancing Your Car Loan
You may have a lot to gain by revising your loan.
Lower Interest Rate
You may be eligible for a lower interest rate. If your credit score has improved or the Federal Reserve has slashed interest rates, you could see the financing cost of auto loans fall.
Cash Back
If your car is still worth more than the outstanding value of your loan, you may be able to get a nice lump sum of money. This can be helpful if cash flow is your major concern.
Length of Loan
Depending upon your financial goals, perhaps a shorter or longer term loan would be beneficial. When refinancing, this is just another factor you may be able to adjust to better suit your needs..
Possible Cons of Refinancing Your Car Loan
There might also be downsides to renegotiating your auto loan to consider.
More Expensive in Long-Run
The total cost of financing your vehicle could go up. This can happen in situations in which your refinance means you’re paying for a longer amount of time, have a higher interest rate, or incur penalties or fees.
Cash Payment
If your car’s worth less than the remaining amount of your loan, you may have to pay back the difference in cash before you can refinance.
Penalties & Fees
Some lenders penalize borrowers for early repayment of loans. You may also be charged loan refinancing application and/or processing fees.
Minimal Monthly Savings
After you go through all the effort of refinancing your car loan, you might not actually see much extra money in your pocket. This could be due to interest rates or the costs associated with the refinance.
Higher Interest Rate
If your financial health or economic matters worsened since you took out your original vehicle loan, you may only qualify for higher interest rates. Rejiggering other aspects of your loan (like duration) could bump rates up, too.
Crunch the Numbers
Once you’ve thought about your personal situation and priorities, and learned about some pros and cons of refinancing, you can run some numbers. This can help you determine what loan refinance terms make sense for you. Using our online loan calculator makes doing the math easier.
As you’re doing this, bear in mind that to minimize the lifetime cost of your auto loan, you want the lowest interest rate and the shortest-length loan you can afford.
Armed with knowledge and data, it should become more obvious if refinancing your vehicle loan is wise. At the very least, the tradeoffs you’ll be making by opting for or against refinancing should be clearer.
Let Valley Credit Union Help You with Your Vehicle Refinancing
Maybe, even after reading up on refinancing your vehicle, you still have questions or aren’t sure what to do. That’s why Valley Credit Union’s dedicated and knowledgeable staff is here for you. You always have a helpful guide to lead you through the complexities financing, so you can be confident in the choices you make.
If you opt to refinance your car loan, our team will work with you to get the best rates and terms. We’ll make the process and paperwork as simple and quick as possible. It’s our commitment to provide you a hassle-free vehicle refinancing experience and stellar loan products and services.
About the Author
Katie Clark, Director of Administrative Services
Katie Clark has been at Valley Credit Union since 2011. She serves as the Board Secretary and oversees Human Resources, Marketing and Facilities for the credit union, some even call her the credit union mom. As a CUNA and GoWest HR council member she stays connected with the latest industry happenings. When she’s not in the office she enjoys weekends with family & drinking wine at the Oregon coast.