Weighing the Pros & Cons of Auto Refinancing

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With the recent shifts in our economy, refinancing your vehicle loan may seem like a “no-brainer” if you’re looking to lower your monthly payments, or even seeking some much-needed extra cash. However, there are a few pros and cons to consider when it comes to auto refinancing.

Reducing Interest Rates

PRO: As inflation continues to impact the cost of vehicle purchases, the interest rate on your auto loan is as relevant as ever. Refinancing your auto loan at a lower interest rate can have a positive impact on the overall cost of your vehicle loan, saving you money over time by paying less interest. That said, there is one thing, in particular, you’ll want to think about first…

CON: There is the potential when lowering the interest rate on your vehicle loan to see an increase in your monthly payment, specifically if you shorten the term of your loan. While you are likely to enjoy some interest savings in the long run, it is important to consider how a higher monthly payment would fit into your budget and financial goals.

Lower Monthly Payments

PRO: Is your current car payment helping to push your monthly budget to the limit? Have the recent economic changes impacted your overall financial picture that could be eased by lowering monthly loan payments? Refinancing to reduce your monthly obligation could help give you the financial flexibility (and peace of mind) that you need.

CON: While lowering your payment can provide extra cash flow each month, the price of that flexibility could be an increase in total interest paid on your loan and/or a longer term before you own the vehicle outright, with the added risk of owning more than your vehicle is worth at some point before the loan is paid off. You’ll want to be sure to weigh these potential outcomes and this decision against your other financial goals.

Borrowing Extra Money

PRO: While more common with other types of property, we do occasionally see scenarios, where a cash-out refinance, makes sense for our members, allowing them to exchange equity in their vehicle for needed funds. Sometimes those funds are needed for unexpected expenses; other times, they’re used to fund repairs to the vehicle itself. Whatever the situation, a cash-out refinance on your vehicle loan could be an option if you need an influx of cash.

CON: Getting cash out from a refinance could increase the life of your loan, causing you to pay more over time. While an urgent need for the extra funds might outweigh this consideration, we’d be remiss if we didn’t mention it. Also, if owning your car outright sooner led to the advanced equity position that made cashing out an option, you’ll want to revisit how this loan and refinance option fits within the total picture of your financial goals.


These are just three of the most common questions we find our members ask when it comes to vehicle refinancing, but there are many more. Our team of auto lending specialists are happy to chat with you about your specific situation and help you determine if an auto loan refinance is right for you. Give us a call at 804-274-1200, visit any of our branch locations, or apply online to get started today.

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