When Should You Refinance Your Car Loan?
Whether you have good credit of bad credit in London, refinancing your auto loan can seem like a tedious, intimidating task to undertake, especially when it seemed like you finally figured everything out while financing your car the first time around! Despite going through the process again, there are plenty of valid reasons why people go ahead and refinance their auto loans. The popular phrase, “the grass may not be greener not on the other side” is certainly one to consider when going through the refinancing process as it’s important to always analyze the pros and cons of each decision you make. Depending on your financial health, refinancing your car loan may serve to be a fantastic option.
Before we jump into when you should refinance your car, let’s quickly review what it means to refinance your car!
What Refinancing Entails
To put it in simple terms, refinancing is taking pre-existing debt and replacing it under new terms– hence the “re” in “refinancing”. The process involves taking on a new loan to pay off the balance of your existing car loan. Most of these loans are secured by a car and paid off in fixed monthly payments over an outlined period of time that usually spans a few years or even months (depending on your down payment).
Reasons to Refinance
There are quite a few reasons as to why people take the plunge and refinance their vehicle.
Lower monthly payment
Sometimes, life happens and unexpected events can cause your regular schedule to take a detour. There may be times in which you might run into a financial pinch or need a safety net. For these instances, refinancing a car loan can keep you afloat and simultaneously allow you to avoid hand-outs. For example, if something unexpected were to come up and take a toll on your personal finances, you may need to reduce your car payments instead refinance a car loan with a longer term (from 36 months to 48 months, for instance). Although you would pay less per month, you would be ultimately be paying more over the course of the new loan period as interest will continue to be added.
Lower interest rate
Interest rates fluctuate and during the period of the your loan. As you may predict, interest rates are determined by the lender. Other variables that factor into the lender’s interest percentage include market rates and the borrower’s credit score. One of the more obvious reasons to refinance your auto loan would be the opportunity to go ahead and see if you have a chance to lower your interest rate. You should always keep in mind that nothing is permanent, including your credit score– whether it’s for the better or worse. If you use tools to check what your score is years into a car loan, there could be a great opportunity for you reduce your interest rate. The great thing with having a lower interest rate is that it opens you up to more options than you had before. One of these options offer the ability to pay off your loan faster, or save money throughout the time that you are paying off your loan.
Different loan durations
Longer Loan Periods
There are many options that carry the power to serve as benefits in your life. One direction you could take is extending the loan term–meaning you will take more time to pay the loan amount. Taking this route could mean that you will be able to reduce your monthly payment. Alternatively, it now could mean that you will end up paying more for your car in the grand scheme of things, including those darn interest rates.
Shorter Loan Periods
The opposite of lengthening a loan period is obviously shortening it. One reason for choosing this option could be that a borrower is trying to pay off their debts in a more timely fashion to save money and slash costs associated to interest. With all the factors involved, and depending on the interest rate, a shorter loan may raise the monthly payment but reduce the total interest paid.
If you owe less than what your vehicle is worth, there is a chance that you could access more cash by refinancing. This is beneficial if you need emergency cash.
Change Your Lenders
Changing lenders can be a positive or negative experience, depending on the relationship you have with your lender. If your lender is tough to contact or is not getting you payment information, changing lenders could be a huge plus. If you like your lender and feel they are treating you fairly, we suggest try to refinance with them. At the same time, it’s important to stay aware of the market to ensure you’re receiving the best possible rate.
Bad Times to Refinance Your Car
Like we mentioned previously, the grass isn’t always greener on the other side. There are times where you should not refinance your as it may not make sense for you financially.
If you have an older or high-mileage car lenders will most likely choose against refinancing your vehicle. Many lenders have set limits on a vehicle’s conditions for the loan to qualify. If you find yourself in a situation where you must refinance your bad credit car loan in London, consider taking out a personal loan or trading in the vehicle as alternative options.
Owing more than what the car is valued is typically referred to as “being underwater” and as a result, lenders will generally avoid these situations.
So, to answer the question of when you should refinance your bad credit car loan in London: it depends. There are different times when you should refinance your loan but it all comes down to your unique situation. Make sure to do your research, check each and every option around you (no matter how tedious the task may seem) and make an informed decision. While you’re making your choice, make sure to keep the golden rule of short term + low interest rate in mind.
If you’re looking to refinance your bad credit car loans in London, contact us and we’ll help you navigate through the process. At London Bad Credit Car Loans, we work tirelessly to get your credit scores and have you driving your dream car without breaking the bank in no time.