It's not an ideal situation to be in, but if you need some extra cash at short notice, refinancing your car can be a great way to release some funds and add to your bank account balance. But when you're playing around with financing and car loans, it can be a risky business. So what are the risks involved, and what are the advantages and disadvantages of refinancing a car loan?
Of course, the first major advantage of refinancing your car loan is freeing up funds. It can also, if you find a lower rate, dramatically decrease your monthly repayments and subsequently the overall cost of your vehicle. If you're moving to a dealer with a lower interest rate, you could even continue paying the same payment as you are with your current dealer. This would then shorten your loan repayment length, saving you time and money in the long run. Because of these advantages, refinancing a car loan is a good move if interest rates have dramatically fallen since you took out the loan. This way you can keep your loan at the current interest rate, saving yourself money in the process.
There are plenty of disadvantages too, however. First, you need to consider the restrictions and penalties placed on you by your current loan agreement. If you pull out or refinance you could be liable for a transfer fee, or you may have to pack back a chunk of the interest before you are able to switch provider. Also, refinancing your loan can not only lower the amount you pay and shorten the time span of the loan, it can do the opposite. Switching loan companies can end up costing you time and money, adding more interest, higher repayments and a larger overall cost, as well adding months or years to your original loan agreement. You may also be charged administration or signing-on fees by your new provider. The amount of these fees will vary according to each dealer, but while they won't add anything to your loan amount, they could cost you heavily in the short term. You don't want to end up paying your current dealer to switch and your new dealer to sign up if the new interest rate and loan deal aren't that much better.
It's a tricky one, and is normally best assessed on an individual basis. Your current financial situation, loan deal, interest rate and income will all play a part in whether you decide to switch loan provider; but remember, it pays to do your research first, don't rush into a change not knowing if it will benefit you in the long run. As with any financial decision, it can be a big risk. But if done correctly, the advantages of refinancing a car loan are obvious, and can be financially very beneficial. If you're thinking about refinancing, make sure you consider it first, it will only help in the long run.