What is Car Loan Refinancing? How to Use It Effectively
Whether you’re buying a new or used car, you will likely need a loan to pay for it. But what if you don’t get a competitive interest rate and opt for a car loan with a higher interest rate to buy the car you want or need?
Well, you can always consider refinancing your car loan.
What exactly is car loan refinancing and should you opt for it? We’ll answer your questions in this guide and help you decide if refinancing is the right choice for you.
What is Car Loan Refinancing?
Car loan refinancing means switching the loan account to another bank or lender, usually, to get better terms and interest rates.
Let’s say you got a car vehicle loan from one provider that offered unfavorable terms, but you had no other option at the time so you took it. Later, you found another financing option with more favorable terms and want to switch.
You can do that through a process called car loan refinancing.
If you’re not sure whether you should go for it, check out its key benefits and then make the decision.
The Key Benefits of Car Loan Refinancing
Many people opt for car loan refinancing to switch to a better lender and enjoy attractive interest rates than their current one. Here are some key benefits of car loan refinancing:
● Use car loan refinancing to get a lower interest rate on your loan, which helps you save money in the long term.
● Other than a lower interest rate, you should also switch if you get more favorable loan terms. This could be related to the repayment schedule, the option to make early payments, and other flexibility your current loan provider may not offer.
● Lastly, you can also get extra funds when you opt for car loan financing. In this case, your total loan amount and payment schedule will change accordingly.
While refinancing has many benefits, it’s not applicable to everyone. Read on to find some key considerations for deciding whether to opt for it.
4 Things to Consider When Refinancing Your Car Loan
Car loan financing is not something you should opt for impulsively, as soon as you find a lender that offers a lower interest rate. It’s a decision that requires careful consideration and should be made with all important information at hand.
Before switching to a different lender, here are some aspects you need to consider:
1. Check If You’re Eligible for Car Loan Refinancing
Before you apply for refinancing for your auto loan, make sure you meet the eligibility criteria. Here are some things you should consider:
● If you have made any late payments on your current loan, you might not be eligible for car loan refinancing. However, if you’ve been paying off your loan EMIs consistently, you’re likely good to go.
● In some cases, the amount you currently owe could be more than the current value of your car. This could be problematic and could make you ineligible for loan refinancing.
● An old car could also make you ineligible for refinancing.
It’s better to check the refinancing loan terms for specific lenders to assess if you’re eligible. Since the eligibility criteria may differ from lender to lender, you may still find good options even if some lenders reject your application.
2. Check Your Credit Score Before Applying for Refinancing Your Car
Credit score matters for refinancing a car loan just as much as it matters when applying for a new vehicle loan. A good credit score can help you get more favorable terms and better interest rates. Not to mention, it increases your chances of getting approved for refinancing.
The opposite is also true. You may not get good refinancing options or even become ineligible if your credit score is too low. So, check the score before you even start the process.
Check out this post where we’ve provided a guide to things you should know about credit scores.
3. Consider Multiple Refinancing Options
If you’ve taken a loan against car and are considering refinancing options, it’s best to look at as many lenders as possible. Do your due diligence and find all possible options before you make a choice.
Don’t jump on the first chance you get because you may find an even better option if you look hard.
Create a list of potential lenders and compare their interest rates and loan terms to narrow down your options.
4. Compare Loan Terms in Detail
Lastly, be very thorough when comparing the loan terms of your existing lender with a potential one. As you probably know, there could be hidden terms and conditions that you may miss and could harm your later.
If you have shortlisted 2-3 options, then this step will help you make the final decision. Choose the lender that offers maximum benefits over your existing one.
Consider Car Loan Refinancing with SK Finance
We, at SK Finance, have helped numerous clients get loans at attractive interest rates through our easy refinancing options. Whether you want a new car or a used car loan, we can provide great refinancing options for you.
We’re one of the leading providers of loans and other financial solutions in India and are trusted by individuals and businesses nationwide.
Here is a list of the various charges associated with our car loans:
