Considering an auto refinance can be a big decision. There are pros and cons to refinancing so it’s important to look at both before you decide.
How does refinancing work?
Refinancing means that you are paying off your current loan with a new loan. Depending on your situation, the refinance can lower your interest rate, your monthly payment, or change the length of your loan.
When does refinancing make good sense?
Every financial situation is different so there is no “one size fits all” solution. For example, maybe your credit score has dropped since you qualified for the original loan. Or maybe you’ve missed a loan payment. If that’s the case, now may not be a good time to refinance your auto. But, if your credit score has gone up since you first got the loan, you may be able to save money on your rate with a refinance.
Three Reasons to Consider Refinancing
- You can get a better rate.
Your interest rate affects your monthly payment amount and the total interest you pay over the life of the loan. If you can get a better rate now, consider refinancing to save money on both your monthly payment and the total interest you pay. Lowering your rate slightly can save you big money in the long run.
2. You can lower your payment.
If you can get a lower rate, your monthly payment will probably be lower too. Second, you may be able to extend the term of your loan with a refinance to lower your monthly payment. However, remember that extending your term may increase the total amount of interest you pay back over the life of the loan.
3. You can borrow extra money.
If your car is worth more than you owe on your current loan, you may be able to get cash out of the refinance. In this case, you are borrowing money against the equity you have in the vehicle. You could use the extra funds to pay off other expenses such as a high-rate credit card bill.
Reasons NOT to Refinance
- You could pay refinancing fees.
Not all lenders charge a fee to refinance and not all fees are the same. When shopping around, be sure to ask what, if any, refinance fees are included so you can compare apples to apples.
- You could pay more interest over the life of the loan.
If you get a lower rate BUT extend the term of the loan to lower your monthly payment, you may pay more interest over the life of the loan. Run the calculations to see what rate and term are going to get you the best bang for your buck.
It never hurts to look around to see if you can get a better deal and save money by refinancing. For a limited time, Members Trust is offering:
No Payments for 90 Days*
Rates as low as 2.39% APR*
*First payment due up to 90 days from loan closing. Finance charges begin accruing as of loan disbursement date. All loans are subject to credit approval. Rates and terms are subject to change at any time without notice. Offer valid through September 30, 2021. APR is Annual Percentage Rate. Your rate is based on your credit at the time of approval. Risk-Based Pricing Notice: The Annual Percentage Rate (APR) quoted “as low as” depending on the applicant’s individual credit history. Rates quoted are based on approved credit. Your APR may be higher based on your credit information obtained from consumer credit reporting agencies Members Trust FCU uses. Rates and terms are subject to change.