In these hard economic times, most people are looking for ways to save money and earn extra income. At the same time, it has become common for people to take loans when seeking to buy cars. However, most people do not have the financial education that can enable them to make informed decisions. One of the things that most people do not know is that they can refinance their car loan. This is commonly referred to as auto-refinance. In simple terms, auto refinance is a loan that is aimed at paying off an existing car loan. In effect, once the new lender has paid off the old car loan, the title of the automobile is transferred to the new lender.
Risks and Benefits of Auto-refinance
As with many other things, there are a number of risks and benefits associated with auto-refinance. At the same time, it is true that there are specific situations where auto-refinance will make financial sense. As such, car owners must ensure that they act based on reliable information.
Risks of Auto-refinance
It is advisable that car owners consider these risks before making a decision to refinance their car loan. Indeed, this will see them making the most of the loan.
One could End up Paying more in Interest
While some people consider a longer repayment term to be an advantage, financial experts state that this could see the borrower paying more in interest. Although the individual monthly payments will reduce, the same will be extended over a longer period of time. In this way, the borrower will pay more instalments, a factor that may result in higher interest.
That cars depreciate over time is common knowledge. In addition, it is worth noting that lenders will use the car as collateral when issuing the new loan. In line with this, if a borrower is not careful, they may end up servicing a loan that is worth much more than the current market value of their car. This will mostly happen when one refinances an older car.
Benefits of Auto-refinance
Although there are risks associated with auto-refinance, one can still take advantage of the benefits of the same.
One could Qualify for Better Interest Rates
In case an individual bought their car at a time when they had poor credit rating, they could use auto-refinance to their advantage. In line with this, such a person can opt for auto refinance once their credit score improves. In a similar way, if interest rates have gone down since a car was bought; this will be a great way of ensuring that the car owner reduces their total cost of borrowing. In the long run, one will end up paying off their loan faster.
Access to More Money
For those who owe less than their vehicle’s market value, auto refinance can help them to access more money. For instance, based on the value of the car, the car owner can get a new loan whose value is higher than that of the old loan. The extra money would greatly benefit a person who is facing financial hardships.
In summary, every car owner should remember that cars depreciate over time. However, after servicing the auto loan to completion, car owners whose cars still have a high market value will be able to sell the same at relatively good prices. Therefore, it is very important that car owners take good care of their vehicles. This can be achieved by taking driving practical test to ensure that one can drive on public roads.