Refinancing A Car Loan – The Good & Bad. Are you interested in refinancing your car and wondering what the benefits and drawbacks are? New vehicle prices have risen dramatically in recent years, as has the average monthly cost of owning a vehicle. In 2023, the average cost of owning a new automobile in Canada is now over $700 per month, while a used vehicle costs little more than $500 per month. According to Canadian statistics, new automobile prices in 2022 are 18% – 25% more than in 2017. Used automobile costs have risen by up to 40% in recent years. Due to the global epidemic and supply chain challenges. But beginning to fall modestly now as new car manufacturers’ supply returns.
Refinancing a vehicle necessitates careful study. And balancing several variables, such as monthly budget, cash flow, reliability, interest rates, warranty remaining, and others. Refinancing can help you save money on your monthly car payments. But it also carries a higher risk. Lenders and banks often provide slightly higher rates as the risks grow. So consider variables such as interest rate, duration, and how much the cost is in the long or short term.
Refinancing A Car Loan – The Good & Bad
So, what are the advantages and disadvantages of refinancing a vehicle in today’s auto market?
Advantages of Refinancing a Car Loan
Refinancing a Car Loan to Reduce Interest Rates
You can qualify for lower interest rates than when you first financed your vehicle. Refinancing to a lower rate could save you a significant amount of money over the life of the loan. If you have paid all your vehicle obligations on time and substantially enhanced your financial situation or credit rating, you may have other alternatives for refinancing an automobile.
For instance: You can obtain a line of credit from your present bank to pay off the automobile. A line of credit often has the flexibility to pay simply the monthly interest as a minimum payment or more, depending on your budget. But an auto loan has a fixed monthly term that does not change every month. If you are not disciplined to keep up payments beyond the minimum, you may finish spending more for the vehicle. It is best to examine all of your alternatives and decide which is best for you.
Refinancing a Car Loan can Lower Monthly Payments.
Refinancing your auto loan can decrease your monthly payments, particularly if you’ve had it for more than a year and have paid down a significant percentage of the loan. Standard auto loan lengths run from 36 to 96 months, based on the initial budget agreed upon during the original purchase. If the auto finance term is extended to the maximum number of months, it can take 2 or 3 years before the vehicle’s worth exceeds the outstanding loan debt.
Refinance Car Loans and Pay Off Debt
Do you have another remaining financial obligation, like a credit card, a personal loan, bills, or something else? You can refinance your car while consolidating your high-interest credit card or other debt. This can help maintain cash flow and budgets manageable and save money by paying off debt at a cheaper interest rate if eligible. It will probably take longer to pay off the vehicle, and it is prudent to consider the entire cost of borrowing. It is always better to have a sound strategy in place to repay any loan or debt, but in an emergency, you may be able to acquire some extra equity by refinancing a vehicle.
Refinancing a Car Loan Used Car Warranty
Refinancing an automobile that has outlived its manufacturer warranty may allow you to incorporate a decent used car warranty. Extend peace of mind while driving when the manufacturer’s warranty is still active. In many cases, you may select different periods and forms of coverage. To ensure that in case of mechanical breakdown, damage, or loss, you have some comfort that the expenses of repairs or losses will be covered and will not place an additional strain on your budget.
Disadvantages of Refinancing a Car Loan
Higher Interest Rates
Higher interest rates are now a reality in Canada, and refinancing an auto loan to a cheaper rate may be impossible, given current market conditions. You must carefully consider the reasons for and advantages of refinancing a vehicle to determine whether the benefit surpasses the expense. Buyers with excellent credit also face higher vehicle loan rates. You may receive a pre-approval for a refinance vehicle loan here and see if it’s suited for you.
Refinancing Car Loans & Additional Fees
Refinancing a car loan usually has a fee. Lenders and dealers will levy a refinancing fee. This will increase the entire cost of borrowing. Some financial institutions and car dealerships refuse to provide this service to customers since it is often not lucrative. Our dealer networks are specialists at refinancing vehicle loans and provide the industry’s best solutions. Apply for a Refinancing Car Loan here.
Refinancing Car Loans & Negative Equity
Refinancing a car loan might also leave you in a negative equity situation, which means you may wind up owing more on your vehicle than it is worth. This is very typical, particularly when acquiring a new automobile. It generally takes between 2 and 3 years to break even. Your vehicle’s value will degrade over time depending on the year, manufacture, and model. The best strategy is to pay off the vehicle at the same pace as it is used. If you drive a lot of kilometers each year, it is better to select a shorter term to keep things in line rather than the lowest payment and risk ending up upside down on your car loan.
Is Refinancing a Car Loan Right for Me?
My credit score has improved. My credit score has improved, and I am now qualified for a reduced interest rate, favorable terms, and the opportunity to save money.
I’m having problems repaying loan payments. Missed vehicle loan payments are bad for your credit and may result in repossession or make it harder to get out of a car loan. It is preferable to take proactive action rather than a reactive strategy. Checking your alternatives is always a good idea, and being approved for a refinancing vehicle loan is free.
I can consolidate some debt. I have some debt that I can combine into one easy-to-manage automobile loan payment. Most credit cards have higher interest rates than auto loans.
I need some emergency cash. When life throws you a curve ball, you need money. In some circumstances, refinancing a car loan can give you much-needed funds.
Do you want to refinance your car loan? We can be your best choice. Edmonton Auto Loans specialize in auto refinancing. Apply now and get pre-approved within the day. We can get you the best car loan plan suitable to your situation.
Do you have more questions?
Contact us at 1-855-227-1669