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Should I Refinance My Auto Loan?

Should I Refinance My Auto Loan?

Getting an auto loan is a big decision. Next to getting a loan for a home, buying a car can be one of the biggest investments that many Canadians will ever make in their life.  It is not a decision that should be taken lightly and you should always make sure that you completely understand the terms of your loan before signing anything.

If you have already gotten an auto loan and now feel that the terms are unfair or you are just having a hard time making the monthly payments, it may be in your best interest to see about refinancing your car loan. Refinancing a car loan can come with both pros and cons. In order to help you better understand if refinancing is right for you, we have illustrated some of the dos and don't of refinancing an auto loan.

Getting a Lower Interest Rate

Many people choose to refinance their auto loan in order to get a loan with a smaller interest rate. Depending on the terms, having an interest rate that is lowered by just a few percent can save you hundreds, if not thousands, of dollars a year.

Your credit score can greatly affect what interest rate creditors will charge you. If you had a below-average credit score when you applied for your auto loan, your creditor may have decided to charge you a higher interest rate in order to offset the risk that he or she was taking.

If you have been making regular payments on your car for an extended period of time, your credit score has probably gone up quite a bit. If you have a higher credit score now than what you did when you first bought your car, it may be worth talking to another creditor to see if you could refinance your auto loan in order to get a lower interest rate and lower monthly payments.

Consider a Longer Loan Term Very Carefully

Not only can a lower interest rate lower your monthly payment, but so can stretching your loan out for a longer period of time. If you feel like your monthly payment is too high for you to afford right now, you may want to see if you can get your loan refinanced to a longer term.

While this solution may seem like a no-brainer, it is important for you to consider how long you plan on keeping the car before you agree to a longer term. If you think that you will only be driving you car for another year or two, but you agree to another five-year loan term, you could find yourself with negative equity when it comes time to get rid of your car.

However, if your car is in good shape and you plan on driving your car for many years to come, then considering a longer-termed loan may be the best decision for you.

If you are still unsure whether or not you should refinance your auto loan, feel free to contact us today. We have a full team of knowledgeable staff that has many years of experience with dealing with auto loans and would be more than happy to answer any questions that you may have about refinancing an auto loan.

Categories: Loans