Refinancing is mainly done to save money. However, you must be wondering what really is refinancing? Refinancing is going over your loan agreement again to revise factors such as interest rates. Refinancing will lead to a new balance and your old debt will be paid off.
- Lower Interest rate: Many borrowers check interest rates and if it is the right time, then they choose to refinance. This can help reduce the amount a borrower needs to pay.
- Reducing debt term: By refinancing, you can pay off your debt faster and end it.
- Increasing the term: This is also an option, since people may have financial problems and may not be able to pay the amount agreed on before. Hence by increasing the time, this helps reduce the financial burden for them on a monthly basis.
- Switching providers: This can help with receiving better service, as you may not be satisfied with the previous provider.
Refinancing should be done at the right time. To further elaborate, there are certain factors, one must keep in mind when thinking of refinancing. To help break it down, here are the factors:
- Need to lower monthly payment: As mentioned before, it may get tough to pay the amount agreed on before so this is the right reason to refinance your car loan.
- Credit score has improved or is better: This helps you in gaining a lower amount to pay since the score is better, the lender may agree on a lesser amount.
- Income has increased: If your income has increased, you may want to revisit your agreement to pay the loan faster by getting the term reduced.
- Interest rates are lower: This requires the borrower to check on the interest rates, if they seem to be dropping, then that can lead a lower amount to be paid. Hence a good reason to refinancing an auto car loan.
The process of applying for refinancing can vary for different lenders. Nonetheless, the main factors that are looked on the recent loan, most important the credit score you have right now and the car’s current value since it can change over time. This helps in cancelling out providers you may not be able to apply to. The documents needed for refinancing are; Info about the borrower (Name, DOB, citizenship, etc.), current tax return data, banking info and details of the vehicle (year, model, title etc.)
Covid’s Impact on car loan Refinancing
Fortunately, during this pandemic, interest rates were lower. Which signifies the right time to apply for car loan refinancing since many car loan providers are also lowering their rates. However, you must remember that not only one factor means you are eligible to apply for refinancing. A borrower should still keep their credit score in check, as well as check the right competitive rates they can get and most importantly, have a stable income flow. However, since this is a pandemic and many people are struggling financially, it may not be best to apply for refinancing as it may result in increasing the amount. Instead, it would be better to contact the current lender or provider and tell them about your financial issues, they may be able to offer you conditions that can ease your burden and help people by coming up with alternatives. Hence, all factors should be taken into account while applying for car loan refinancing.