Refinancing an auto loan involves taking on a new auto loan to pay off the balance of your existing auto loan. One of the most common reasons consumers refinance their auto loan is to reduce the interest rate and payment. There are, however, other factors to consider when deciding whether refinancing your auto loan is best for you.
PROS: You could secure a lower interest rate and monthly payment
Interest rates on auto loans are very competitive, and shopping around could be beneficial. Depending on the terms of your initial loan, it is possible that refinancing your auto loan could result in a lower interest rate, which means you’ll pay less over the life of the loan.
A lower interest rate could also reduce your monthly payment. This is important, especially if you are struggling to make your current payment or could use a little more wiggle room in your monthly budget.
CONS: You may extend your payment timeline and pay more interest over the life of your loan
While a lower payment may lighten your monthly budget, it is important to remember that refinancing may mean you’ll be paying on your car loan for months or years longer than you originally planned. If you are extending the loan on a used car that is several years old, you could still be making payments on an older vehicle that may need pricey repairs down the road.
In addition, make sure you compare your total interest cost. A lower interest rate may be a better deal in the short term, but you may end up paying more interest on your loan because of the longer timeline.
When it comes to refinancing your auto loan, it is important to consider all options. Shop around for the best interest rate, but also try to keep the length of the loan as short as your budget will allow. This will help you avoid paying more in the long run. Visit mydccu.com/auto for more information about DCCU Auto Loans.
This article is for general information only and not intended to provide specific advice or recommendations for any individual.