Are you thinking of refinancing your car, girlfriend? While there are definitely pros to refinancing, it's also essential to consider the cons. So let's review the basics:
What does it mean to refinance a car?
Refinancing simply means that you pay off your current car loan with a new loan. Depending on your unique situation, auto refinancing could lower your interest rate, your monthly payment, or change the duration of your current loan.
Now let's review both sides of the coin.
The Pros of Auto Refinancing.
1. You could qualify for a better interest rate.
Listen, girlfriend, we've all made mistakes in life, and perhaps one mistake (or a couple mistakes) have been made with your credit. Due to this, the interest on your current auto loan may be sky-high. Here's the deal. If you've been working on improving your credit score since the initial vehicle purchase date, chances are you can qualify for a lower interest rate. However, if not, I would highly recommend focusing on increasing your score before initiating the refinancing process. Because honestly girlfriend, in the end, you're only going to be broken-hearted with an additional inquiry on your report... and ain't nobody got time for that.
2. You could decrease your monthly payment.
Choosing to refinance your car could help you save money in a couple of different ways. First, if you're approved for a lower interest rate, the subsequent monthly payments are guaranteed to be smaller. Secondly, if you decide to extend the term of your loan, let's say from 36 months to 48 months, you can lower the monthly payment. However, the latter I wouldn't recommend. Although it may save you money month to month, you'll be increasing the amount you payback for the length of the loan.
The Cons of Auto Refinancing.
1. There's a possibility you may have to pay refinancing fees.
As with any financed purchase, it's always a possibility that you may run into additional fees: transfer fees, exit fees, upfront fees, etc. etc. However, all lenders are different, and there's not a one size fits all. So always do your research when comparing refinance options and never allow anyone to run your credit until your confident you're moving forward in the process.
2. You could pay more interest over the life of the loan.
As I mentioned before, extending the term of your loan will have you paying out more money in interest over the long run. For example: If you currently have a $10,000 loan with a 20% interest rate over a 36-month term, you'll pay $3,378.89 in total interest. If you refinance that same $10,000 at a 15% interest rate for 60 months, you'll pay $4,273.96. That's almost $900 more!
So, girlfriend, the underlying lesson here is to get and keep your credit score high! Your bank account and future self will thank you!
Ready to take your finances to the next level? Schedule a FREE 30-minute Breakthrough Call and let's discuss how the LEVEL UP PROGRAM can help get you on the right financial track. Let's do this, girlfriend!
Until Next Time,
Elle
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