You’ve spent years building up your credit and saving for a car, and now that you finally have one, the last thing you want to do is ruin it. Refinancing a vehicle can help you avoid that fate. But before you start the process, there are a few things to consider. Here are five common misconceptions about refinance:
You can refinance any loan at any time
The idea that you can refinance any loan at any time is a common misconception. You can’t refinance your car loan, or your business loan, or even your credit card. The bottom line is that the lender who has your original loan will have to agree to it and then they’ll need to find a new lender who will accept the terms of the new deal.
So while it’s true that most lenders aren’t going to deny you when you want to refinance—though some may—it’s not an automatic process for everyone.
Refinancing will always save you money
Another common misconception is that refinancing will always save you money. This isn’t necessarily true. It depends on your current loan, the interest rate you qualify for, and the fees associated with refinancing your car loan.
If you’re paying more than 4% on your current auto loan, it’s time to look into refinancing options. However, if your current rate is below 4%, then it may not be worth it to refinance because there are other factors involved in determining whether or not this new loan will cost less than what you’re currently paying per month.
It takes a long time to refinance a car
You think it will take weeks to refinance your car, but in reality, it can be done in less than an hour. All you need is a few minutes online and some information about your vehicle’s value. Once you’ve applied for refinancing, the lender will call or send a request for any documents they need from you. It’s really easy!
Refinancing is the same as getting a new loan
When most people think of refinancing, they think of getting a new loan. This is not true! You can refinance any loan at any time, regardless of how long ago you took out the original loan. The only thing that matters is what your current interest rate is and what kind of rate you qualify for when refinancing.
While refinancing will always save money in the long run, it takes much longer to actually get approved than a traditional car payment would take.
Interest rates are the only reason to refinance
The most common reason people refinance is to lower the interest rate on their loans. While this is a good idea, it’s not the only one. If your car loan has a very high-interest rate, refinancing could make sense even if you don’t want to change anything else about your loan terms. The same can be said for lowering your monthly payment or extending the length of your loan term (or both!).
According to financial experts Lantern by SoFi, “There are benefits and drawbacks to refinancing an auto loan, no matter your situation. You should weigh these carefully when deciding whether refinancing is right for you.”
So before saying “no” to refinancing take a look at whether any of these other reasons might make sense for you as well. If you want to save money on interest and pay off your loan sooner than expected, refinancing from experts might be the right option for you.
