Most of us opt for auto finance while buying a car. Many a time we realize after taking a loan that this one charges steep rate of interest and there are other cheaper loans available in the market. What do we do in such times of distress? The best and mostly availed option is to opt for refinancing auto loan. Though this is not as popular as refinancing home loans. Gradually, it is gaining popularity all over the world.
Those who have opted for refinancing auto loan swear of the fact that it lowers their rate of interest by as much as 2 to 3 % in the long term. That’s a lot of money saved in the long term time frame.
The fact that monthly installments are lowered; one can service the loan easily and increase their credit rating also. Many people also avail of refinancing auto loan as a tool to increase their tenure of repayment. Though, enough has been discussed on the advantage side of refinancing auto loan not much is said about the other not so good aspects of refinancing auto loan.
Those who stretch their repayment tenure by taking a new auto loan to refinance the old miss out on buying a new car in future. Read the offer document carefully, as many banks have monthly installment schemes that service only the interest portion, as a result a major chunk of the principal is yet left to be repaid. This results into a ballooning effect at the end of the loan tenure.
Many people who have opted for refinancing auto loan have suffered from higher payment of interest in the long term. However, refinancing auto loan is a good option in the following scenarios.
Scenario One: The car loan availed by you has steep rate of interest and the present car loan rate is cheaper. In such cases, it is a prudent decision to opt for refinancing auto loans. By refinancing to cheaper car loans the rate of interest will decrease. The borrower will end up saving loads of money in the long term.
Scenario Two: When the car loan opted by you has fluctuating rate of interest. You have no peace of mind as your monthly installments may increase any point of time depending on the economy. In such cases, it makes sense to refinance the loan. By doing so, you can opt for a fixed rate of interest leading to fixed monthly installments.