If you have financial problems or find that there are better loan offers, car loan refinancing can be an option. While sometimes you will get better deals from different companies, it is very important that you make the right and thorough decision so that you get the full benefit of refinancing. The maximum refinancing period through vehicle loans allowed for used vehicles is for 7 years and for new vehicles is for 8 years for government loans.
There are two situations in refinancing your car loan. You can decide whether you want to shorten the term for your car loan or extend your term. So, how do you know which one you should choose?
Shorten loan period
You might want to shorten your loan period as you have extra cash and want to settle your debt faster. Shorter loans feature lower interest rates and higher payments over time. The lower the interest rate offered by the lender, the shorter the auto loan. This is because shorter loans have a smaller chance of default by the borrower. Short-term loan debtors are rewarded by the lender with a lower interest rate. Ultimately, you will pay less for your vehicle compared to long-term car loan.
Switching to a short-term loan allows you to free up funds more quickly. You can use the money toward your next vehicle, an emergency savings, your children's education savings, or your retirement account. Whatever you do with the extra cash, it's money that'll only be available if you decide to shorten the loan's duration.
You may also wish to shorten the period of your auto loan in order to save money on insurance. Once you acquire the car, you have the option of deciding how much insurance you need. Damage coverage is usually needed by a lender to safeguard the car's value in case of a crash. Once the debt is paid off, you'll simply need to carry the coverage that your state requires.
Extend loan period
If you are having difficulty in financing and have a limited budget, your main purpose for refinancing is to relieve financial stress, you might choose a longer payback period, which will lower your monthly payment. Of course, with a longer payback time involves a larger interest rate. Refinancing for a longer period might lower your monthly payments and make cheque book balance easier. The answer is dependent on your specific circumstances, but assume your current loan debt is RM20,000 with a 6% interest rate and a five-year (60-month) repayment period. You could reduce your monthly payment and overcome the circumstances that you’re in.
Please note that while lower monthly payments may benefit you in the short term, a longer-term loan might put you at greater danger financially. After your car's value has dropped dramatically, you may be forced into paying out a considerable chunk of your loan. An auto loan refinance may still be a viable option if your immediate objective is to lower your monthly payments. If your economic status has improved, consider refinancing now but upgrading your monthly payment later.One can always use an online debt repayment calculator to determine if refinancing could lower your monthly payments and your overall interest expense.
Conclusion
If you acquire a lower interest rate or finer loan terms owing to an increase in your credit score or financial situation during your existing loan term, refinancing your car loan is an excellent decision. It's important to note that you won't be able to refinance your current loan with the same bank. Refinancing is normally accomplished by obtaining a new loan from a different lender. If you wish to stay with your current lender, you'll have to take out a top-up loan or pre-close your current loan and request a new loan with the same bank. It should also be kept in mind that sometimes refinancing also incurs losses and increases your debt burden. Getting the most brief credit term joined with the least financing cost will guarantee you are getting the best vehicle advance conceivable. If you still have questions, you can directly consult with our team just by clicking the button below!