What Is Cash-Back Auto Refinancing?
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How Does Cash-Back Auto Refinancing Work?
What Is Equity on a Car Loan?
Benefits of Cash-Back Refinancing
Lower interest payments: One major upside of refinancing is the potential to lower. Say you have $30,000 left on your auto loan, your current interest rate is 7%, and your loan term is 60 months. By refinancing with a new loan with the same term and 4% interest, your monthly payments would drop from $594.03 to $552.49. You’d save $2,492.42 in interest payments over the life of the loan. A more manageable monthly bill: Refinancing can also allow you to make your monthly payments cheaper. To do so, you might extend the loan term. Consider the above example, only this time, you decide to extend the term to 72 months. By doing so, your monthly payment would drop from $594.03 to $469.35. That said, because you’re paying interest for longer, your interest rate savings is only $1,848.56. While your interest rate savings in this case may be $643.86 less, if a longer term and a lower monthly payment helps you pay off your bills on time — a key factor in building a good credit score — then the smaller interest rate savings may be well worth it. Access to a lump sum of cash: As the name suggests, cash-back auto loan refinancing gives you access to cash, which is always useful. But you may want to consider accessing money from a cash-back refinance only in the case of emergencies, or if you can consolidate debt that has a higher interest rate than your refinanced loan. For example, if you use $5,000 from a cash-back loan with an interest rate of 7% to pay down $5,000 in credit card debt with a 14% interest rate, you can ultimately end up saving yourself money.
Risks of Cash-Back Refinancing
Taking on additional debt: Cash-back refinancing means that you are taking on more debt than you already had. That puts you at greater risk if you’re struggling in your financial situation. As a result, cash-back refinance may be something you consider as a last resort. Increasing your chance of going upside down: What’s more, because cash-back refinancing can lead to a bigger loan, it can increase the chances that you’ll go underwater as your car’s value drops. Going underwater can limit some of the options available to you. For example, you’re unlikely to be able to refinance again or trade in your vehicle toward the purchase of a new car. Also, if you sell your car, it’s unlikely you’ll garner enough from the sale to cover the amount you still owe on your loan; you’ll be on the hook for the difference.
Finding a Cash-Back Auto Loan Lender
Applying for a Cash-Back Auto Loan
Credit score: Your lender will likely have a minimum credit score requirement. Typically, borrowers with the highest scores will qualify for loans with the lowest interest rates. A FICO score of 700 or above will usually qualify you for the best rates and terms. Lenders may worry borrowers with lower scores are at greater risk for a loan default. Payment history: Your lender will look into your history with your existing loan. They’ll want to be sure you have a history of making on-time payments. Proof of income or employment: Your lender may also want to see proof of income or steady employment to be sure that you’re set up financially to make future payments.
3 Car Loan Refi Tips
Refinancing your auto loan could lead to lower monthly car payments and more money in your budget. Lantern by SoFi can help you find the right car loan refinancing rate for you. Shortening the term of your auto loan may increase your monthly payments, but you’ll likely pay less in interest over the life of the loan. You may have trouble refinancing the loan on a car that is worth less than what you owe. For more info, check out When Is the Right Time to Refinance a Car?
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