Have you ever heard of the term car loan refinancing? I guess most of you would not have. Let me tell you that car loan refinancing is taken to pay off the existing car loans by opting for loan from a new car loan lender. Now you must be wondering as to why this tool has to be used when an individual is already having the burden of loan. The reason is the lower interest rates you get on their existing car loan while taking another loan. This results in enhanced savings for the borrowers.
You can easily access car loan refinance, which is a secured credit like a home mortgage loan. All you have to do is to pledge the car registration paper with the lender while taking loan on the existing car. While car loan is taken to buy the car, refinance option allows you to get the money by pledging the car.
How does car loan refinance calculator work?
Car loan refinance calculator will help you access the refinancing details on the existing car loan and simultaneously enable you to decide your feasibility for the option. All you have to do is to furnish details related to your existing car loan such as principal outstanding, monthly installment, current interest rate, time for refinancing. Subsequently, the calculator will come up with details on monthly installment & savings, refinancing interest rate and net financial savings.
After discussing the basic features of car refinance, now jump on to the benefit of car refinance
You can get benefits of enhanced savings and reduced monthly installments while using car refinance option. If you fit into the eligibility for a car loan at lower interest rate compared to the previous loan, then you can opt for car loan refinancing. As a borrower, you can cut down the loan tenure according to your financials.
Compare the existing interest rates that you are paying with the one quoted by another lender to get a clear picture of what is better for you. If floating interest rates were opted for the primary loan, then refinancing can turn out to be a good option.
Improves credit history
Car loan refinancing improves your credit history. Even if the credit history of an individual is bad, he/she can take a new car loan for a sub optimal term. As refinance option allows you to pay off the existing car loan, the credit score thus improves. A good credit score is being viewed as a top criteria by banks and other financial institutions while extending loan to the customers.
Faster sanctioning of the loan
Time to approve and sanction car refinance loan is minimal depending upon your repayment capacity.
Even though a borrower has a lot of benefits using the car loan refinance tool, he/she will have to contend with certain pitfalls related to the option explained below.
Increased repayment period
Well, the monthly payment amount can be reduced with the refinance option. But you may end up making payment for a longer period, which will take out more from your pocket in the long term. If you have been paying the loan for a shorter duration, you are mostly likely to have made payments more towards interest than principal. If the loan payment has been for several years, you must have already paid off the interests. Refinancing can take out a hefty sum from your pocket towards interest in the initial period.
Car loan refinance can create negative equity, which implies that you have the loan burden of much more than the value of the car. Despite having excellent history, the negative equity will make things difficult for you to convince the lenders to get the new loan. You may be able to find a lender and also manage to lower down your monthly payments by extending the loan but it is highly unlikely to get the better interest rate with negative equity.