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Things to note while refinancing
Car loan refinancing can be done for any of the above mentioned reasons. While refinancing, people often look for benefits with regard to overall cost or payment terms of the existing loan. When you decide on refinancing, you may have to check the following factors to ensure that refinancing works to your advantage.
When is refinancing a bad idea?
In some cases, refinancing may not make good financial sense for either you or the potential lender. Those situations include:
When should you avoid refinancing?
While there are considerable benefits associated with refinancing, there are situations where you may have to refrain from it. If you are facing any of the following situations, you may have to think twice before applying for car loan refinancing.
If you are applying for another loan:
When you apply for refinancing, it will be marked in your credit score as an inquiry. Multiple loan inquiries in a short term will bring down your credit score. If you are on the verge of taking a large loan (e.g. home loan), it is not the best time to refinance your car loan. You might end up paying a higher interest rate on your bigger loan if your credit score declines during this time.
If the terms of refinancing are not satisfactory:
It goes without saying that there must be some sort of advantage when you take refinancing on your car loan. If the terms of the new loan are not benefiting you in any way, there is no point in proceeding with this option. If you still proceed with refinancing, you might get stuck with a loan that has higher monthly costs and longer repayment tenure. It is not a good idea to look for temporary relief when you are planning to take car loan refinancing.