What Are the Benefits of Refinancing?

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


, - December 18, 2019

Refinancing is when you replace your current car loan by signing a new loan contract, with the goal of receiving better terms so you can save money. In order to qualify for refinancing, you need to have good credit, or a credit score that has improved since you took out the original loan. However, there are some drawbacks you need to be aware of, as well.

Refinancing Benefits: More Money

When you refinance, you take out a new auto loan. Usually, you go to a new lender, but it’s also possible to stick to your current lender. In addition to the credit qualification, your vehicle has to meet the lender’s refinancing requirements. These requirements include age, mileage, and equity limitations on the car.

Consumers typically choose to refinance bad credit auto loans in order to save money. You can do this in one of two ways:

  1. Extend the loan term – You can lower your monthly payment by extending your loan term. However, you don’t end up saving money overall if the interest rate is still the same. In fact, you end up paying additional interest charges when you extend the loan term, so this isn't something to do lightly. If you absolutely need to make your monthly payment more affordable, this can provide a short-term solution.
  2. Qualify for a lower interest rate – In an ideal refinancing situation, you’re able to qualify for a lower interest rate. In this situation, you reduce your monthly payment and the interest charges, giving you the chance to save money overall and the opportunity to pay off your loan earlier.

Our trusted partner can help you with refinancing. You can view and compare offers online to see what works best for you.

Refinancing Cons

Although refinancing is generally a good thing, it’s possible that it may not be the right thing to do in every situation. Just because you can lower your monthly payment by extending the loan term doesn’t mean you necessarily should.

Yes, you have a chance to make smaller payments each month, but you end up paying more in interest charges. Plus, refinancing could result in having negative equity – when you owe more on the loan than what the vehicle is worth.

It’s important that you understand how refinancing can backfire if you’re not careful. Talk to your lender about any concerns you have, and whether or not doing it now is right for your situation.

The Bottom Line

The main goal of refinancing is to save money – whether that’s through extending the loan term or getting a better interest rate. On the other hand, if you're looking for a bad credit car loan, CarsDirect can help with that.

We work with a nationwide network of dealerships that have the lending resources available to handle unique credit situations. Fill out our free, no-obligation auto loan request form, and we’ll get right to work connecting you to a local dealer.

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Megan Foukes is a recent graduate from Indiana University who graduated with a bachelor’s in journalism. Megan works as a content writer for Auto Credit Express and contributes to several automotive and finance blogs.


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