Auto Refinancing With A Car Loan
Auto refinancing is a term that is used when a consumer takes out a loan to pay for a car loan that she had taken out earlier, in essence transferring ownership of the car from one creditor to another. It simply involves a consumer being given a check from their new financer or lender, using it to pay off their car loan, and then begin making payments to their new lender monthly.
Auto refinancing is a good option if the end result is that your credit score would improve. A high credit score will open doors to lower interest rates in the future. Again, a consumer may choose to auto refinance if the interest rate being offered is lower than that of the auto loan.Therefore, use it to pay off the higher interest rate car loan and then be left to pay over time the lower refinance interest rate.
Watch out though for lenders that offer lower interest rates, but over longer periods of time. This way, a consumer ends up paying the same amount, or even more than before auto refinancing.
It is also wise for consumers seeking to refinance to do so at the beginning stages of their loan term. Usually how a car loan works is that a consumer will pay more interest at the beginning than toward the end. This is because, toward the end the car has begun to age and the collateral on the car at that time will not be of value enough for a resale.
Again consumers should be careful that the auto financing scheme they have taken out does not have prepayment penalties, otherwise the amount they would be saving by opting for auto refinancing would be lost.
In summary, a car loan is a helpful tool that can be used in reckless and nearsighted ways.