Car refinancing is an unsecured loan that you use to clear off an existing car loan. This is a great way to save some extra cash by saving hundreds of dollars in monthly car payments. With the increase in demand for car refinancing in Singapore today, many banks and other financial institutions are offering one of the cheapest car financing loan rates in the market with longer loan tenures to attract new customers. Even the loan process has been speeded up and made much more convenient.
When you refinance you are transferring the ownership from one creditor or issuer to another. There are many reasons why car refinancing can be a good option for you. The main reason for car refinancing is the concern regarding interest rates. When you financed your car, if the general rate of interest in the market was high, you don’t want to be stuck with high monthly payments for your car. In such a situation, refinancing is a good option if the interest rates have seen a drop recently. This will help you save a lot of money on your interest. Even if refinancing reduces your annual interest payments by 1%, it is definitely worth giving some thought.
Refinancing is a good option is if your credit score improves. The interest that you pay on any loan greatly hinges on your credit score. Therefore, if at the time you applied for your car loan, your credit score was less than average, you would now be paying a much higher rate of interest as compensation for maintaining a less than decent credit score. However, since the car loan, if your credit score has improved even by 50 points, car refinancing will be a prudent option for you because your better credit score can fetch you a lower rate of interest than what you are currently paying.
Another reason to refinance is that you simply did not get the rate you deserved at the time. You might have had a perfect credit score, but it does not mean that you got the best deal in the market. If you didn’t do your research well and had settled for a dealer sourced car loan, you may now have realized that these loans carry a much higher rate of interest than dealing with the bank directly. This is because the extra money that you pay is a profit that the dealer makes.
If your car is relatively new, it is a good option to refinance. This is because the newer your car is, the more valuable it is as a collateral in case the loan is not completely paid. Therefore, the value of the car also is a factor when you think about refinancing.
Refinance if you have a long loan tenure. It is common knowledge that the longer the tenure of your loan, the more you will pay in terms of interest payments. So don’t focus your attention merely on the monthly installment payments but also on the loan tenure and how much you will be eventually paying for the loan. If your current loan tenure is 5 years or more, it is advisable to give refinancing a thought.
At certain situations in life, refinancing may be your only option. Suppose you have suffered a major financial setback and are looking to cut back on your finances by reducing payments, refinancing your car is a good way to make some extra cash and channelize that money elsewhere. Not only will you save money, depending on your new financial situation, you can even choose to increase your loan tenure so your monthly payments fall further.
The most obvious document that any lender will ask of you will be an Identity Proof. In addition to this, you may also be required to declare your income documents by submitting your monthly pay slips, income tax declarations etc. Some lenders also require your car to be fully insured. However, this is not a pre-requisite for all lenders as some of them can even handle your insurance as part of the process.
Generally, lenders do not charge fees for the application. However, once your loan has been approved, an administration fee will be charged. If there is a transfer of vehicle, you will even be charged with a vehicle transfer fee.
Lenders usually do not charge a deposit when you refinance. However, the car that you have taken the loan against forms your collateral for the loan. As previously mentioned, a new car is much more valuable as a collateral than an old one as the value of a new car is much more higher, hence, the package that you get from your new lender will differ depending on the car you have that will be used as the collateral or security. There may be other terms and conditions applicable as well for which you will have to contact your lender directly for more information.
When you choose to refinance and close your loan early with your existing lender, you may be worried about the interest that you will be charged for closing the loan early. Although this is a valid concern, a little more knowledge regarding the loan structure can reduce your burden of thought. When a lender offers you a loan package, they will expect payments plus the interest charged until a certain predetermined date for the loan closure. However, even they would have looked at all other possibilities before making a final call. Most of the car loans are structured in a way where majority of the interest is charged and paid off by you in the first half of your loan tenure itself, so you need not worry about making heavy interest payments when you are closing your loan early.
Also, another thing to remember is that processing refinancing applications for car loans are becoming relatively much faster today. Most of the refinancing loans are very straightforward, hence lenders do not need much deliberation in deciding to approve or reject your application to refinance. There are many lenders today who even give you their final decision within 24 hours of submitting your application via email. Once you have their final word and if your loan has been approved, you can evaluate the package and if it is not up to your expectations, you can even persuade them to make alterations in the package such as reducing your monthly payments by increasing your loan tenure or even reducing your interest rate structure.
However, remember one last thing, whatever action is required from your end regarding the refinancing of your car loan, it is important that you make those decisions and act on them before you start falling behind on making your payments on time. The highest chances of making editions to your loan and coming to a mutual agreement is possible in the earliest stages of your loan tenure.