Many people fall behind on their auto loan repayment partly because they are too expensive or have limited income. According to a Washington Post report, about 7 million Americans fall behind on their auto loan repayments by 90 days.
Another report says Americans owed an estimated $1.16 trillion in auto loans as of March 2019. This amounts to around 10% of all outstanding consumer debt as of March 2019.
What is Loan refinancing?
Loan refinancing is where a lender offers a new loan with favorable terms to the customer. The favorable terms may be lower monthly payments, reduced interest rates, or any other benefits. Loan refinancing mainly happens when there is a change in the interest rate or when a consumer’s credit rating qualifies them for better terms.
Lower Your Monthly Car Payments
Many people take refinance loans to lower their monthly payments. In this case, the lender issues a new loan with lower monthly payments in the form of less interest rates and longer loan terms. A lower interest rate is good because a loan will always attract interest rates until it is fully paid.
High-Interest Rate on Your Loan
Credit score and current interest rates are some of the factors that determine the interest rates on auto loans. Bad credit or weak credit history may lead to higher interest rates. You may, therefore, end up paying more money in additional interest.
Long loan term
The loan term affects monthly payments as well as the total amount paid for the vehicle in the long run. Although many auto loans fall in 3- and 5- years, there has been a rising trend of customers going for 7 years and above.
A longer loan term causes the customer to pay more over the life of a loan. There is an increase in total interest rates paid, which may make you pay more than the vehicle’s original price. It is also the loan term that determines how long the customer will take to pay the loan and how much will be paid monthly. A shorter loan period may mean big monthly payments.
