Car Title Loan Refinance is A Good Option or Not?

Generally, the refinancing of loan refers to the process of taking out a new loan to pay off the outstanding loan. The borrowers usually opt for the refinance option in order to receive a lower interest rate or to reduce the repayment amount. The borrower who found it difficult to pay off their loans because of financial issue or another emergency condition take the help of refinancing company to protect from being loan defaulter.

The car title loan provides the option of refinancing to its borrower. The auto title loan refinances help the borrower protect the vehicle from the repossession and get it clear from the lien. One can apply for refinancing immediately, even before your first monthly payment. However, the vehicle age, miles driven and equity of the car determine its eligibility. Moreover, the refinancing of the vehicle doesn’t depend on the credit score of the borrower.

There are certain advantages and disadvantages of refinancing the loan. A detailed explanation can help determine the best situation to opt for the car title refinance option:

Advantages

1. Lower the interest rate

The refinancing the auto title loan ensures that the refinancing company will offer comparatively lower interest rate. Lowering the interest rate will ensure the borrower that they can easily pay off the loan amount and can get the vehicle lien free.

2. Increase the cash flow

If you owe a less amount to the lender in comparison to the value of the vehicle, refinancing can help improve the cash flow for the borrower. For example, consider your vehicle’s current market value is $12,000 and you owe the lender a total of $7,000. The borrower can ask the refinancing company to refinance the vehicle for $9,000. This refinancing option is acceptable as the borrower still owe the amount less than the value of the vehicle and therefore, one can get the extra $2,000.

3. Lower the payment by extending the loan

Sometimes, people find it difficult to pay off high monthly payments for the loans either because of emergency situations or because of financial situation. The refinance help the borrower in reducing the monthly payment amount. The reduction in monthly payment allows the person to make a better financial decision. In certain situation, refinancing is considered a better option than losing the vehicle to high monthly payment.

Disadvantages

Refinance lower the interest rate but extends the time period of the loan. The extended time period might lead to paying the extra amount to the lender. For example, if you have a $5,000 loan with a 10% interest rate paid over the course of 2 years, you will pay $5537 in total. However, that same loan extended over a period of 5 years will end up costing you $6374 which means you will be paying an extra of $837 for the extension of three years.

Depending on the situation, refinancing can be a good deal for you or vice-versa. It is always recommended to use the loan calculator to figure out the benefits and loss associated with the refinancing of the loan.