An auto loan refinancing refers to replacing your existing auto loan with a new auto loan from a different lender. The reason why you should opt for a car loan refinancing is that it can help you get access to favourable repayment terms even when your loan is already in progress. When you plan to go for refinancing, you will get new features and benefits.
There are numerous benefits associated with auto loan refinancing, such as lower interest rates and flexible repayment tenures. The interest rate on used car finance depends on your CIBIL credit score. It also fluctuates based on market conditions.
If you previously procured a loan with a higher interest rate than you could get now, it may be the right time to apply for refinancing and manage your finances and get some of the financial burdens off of your shoulder.
Reasons for auto loan refinancing
Lower interest rate
If you are on an existing loan that has a higher interest rate and an inflexible loan tenure, you can opt for a car loan refinancing option and lower the overall interest that you pay on your existing loan.
Furthermore, if you have recently improved your CIBIL credit score, you can think of refinancing. The greater your credit score, the better chances of getting a lower interest rate along with other benefits. Also, check your current loan statement and locate your used car finance interest rate. If the interest rate is more than one percentage point higher, it may be beneficial to consider refinancing.
Modifying loan repayment tenure
With auto loan refinancing, you can increase or decrease the repayment tenure based on your financial requirements. Refinancing can enable you to extend your loan tenure, which means you can repay your loan over a longer period. It also allows you to decrease your EMIs. However, you must remember that a longer tenure entails a higher amount in total (including interest) at the end of your loan tenure.
Besides, if you reduce your loan tenure through refinancing, you will be able to clear off your debt quickly and also decrease the interest amount payable every month.
Switch your lender
You may not have been satisfied with the services offered by your currency lender. For instance, you may have been hit with high fees or find it difficult to contact your lender or their representative to resolve your issues. In such cases, it is always better to do an auto loan refinance with another reliable lender.
However, you will need to ensure that the new lender can offer a lower interest rate and have better customer service facilities. Change the terms of your auto loan
While applying for a loan, you may have come across a loan that didn’t completely cater to your needs. You may have settled for it because it has been slightly better than other available options in the auto loan market.
Nevertheless, if you stumble upon a loan offer with better terms related to late fees, prepayment charges, hypothecation, insurance application charges, you may want to refinance it and enjoy better features. Don’t forget to use a used car finance EMI calculator to mtake an informed decision.
Amendments in co-signer agreement
Your lender may need a co-signer to secure an auto loan when you are financially unstable. Once you are financially sound, there is no longer need for a co-signer. Refinancing your auto loan enables you to eliminate your existing co-signer or add a new one.
Also, if your present co-signer is not able to provide a guarantee for your loan repayment, then you can choose to remove their responsibility by refinancing your auto loan.
Things to remember before refinancing your auto loan
- Always assess your prepayment charges and ensure that it is lower than the benefits you are getting from refinancing. The prepayment penalty can range from 1% to 3%.
- Lenders may not approve your refinancing application if your vehicle’s value is depreciated. Even if your application is approved, you will not receive a fair deal.
- Always choose a trustworthy lender that offers dependable services. You can evaluate their reputation by doing online research.
- You will have to be wary of processing fees and other hidden charges. You must assess how much it will cost you before deciding to refinance our auto loan.
Refinancing your auto loan is the best option to manage your finances if you have recently improved your credit score or have issues with your current lender.