Car Loans: Car Loan Refinance
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Car loan refinance can offset the high interest rates of an existing loan and reduce monthly payments by increasing the loan duration. With refinancing, one can reduce the risk factor and switch the terms of the car loan.[br]
Car loan refinance can offset the high interest rates of an existing loan and reduce monthly payments by increasing the loan duration. With refinancing, one can reduce the risk factor and switch the terms of the car loan.[br]
Car loan refinance, in simple terms, is a loan taken to clear the residual amount of the existing car loan and thus save on the total interest. Refinancers look at the past payment history of borrowers to consider the approval for dispensing such loans. Refinancing could be done through a secured or an unsecured loan.
Car loan refinance also helps in tackling economic turmoil where the federal base rates shoot up and floating rates become too high to be affordable. With refinancing, borrowers can go for a fixed rate loan and remove the risk of increasing interest rates. This, however, comes at a price as lenders charge a premium for prepayments.
Call Provisions and Car Loan Refinance: The Flip Side
Paying off debts before they mature is a penalized exercise. There are only a few lenders that don’t charge any penalties for prepayments. Therefore, refinancing a car loan often results in paying a lump sum amount to pay off the debt along with the penalty. Most lenders mention this clause in their contract and call it the call provision.
Besides the penalties, refinancing also attracts other charges in the form of closing and transaction fees. In some cases, these fees can even offset the savings purported by car loan refinance. Therefore, borrowers must study the contract and inquire about the charges that prepayment would attract. Else, car loan refinancing may reduce to just changing the lenders or even worse more debt.[br]
To add to the flip side, car loan refinancing can also result in higher total interest cost. The refinancers may offer leeway in terms of down payments; however they may increase the loan payment duration.
Refinancing can also expose borrowers to greater risk depending on the terms it has been agreed on. Therefore calculating the upfront, potentially variable and ongoing cost of car loan refinance is crucial for effective refinancing.
