How to Survive Tough Economic Times by Refinancing Your Vehicle
Key Highlights :
As the economy continues to struggle and cash-strapped and overindebted consumers are left to make difficult financial decisions, it is important to understand the options available to you. Refinancing your vehicle is one such option that can help you save money and make ends meet during tough economic times.
Refinancing a vehicle means replacing your current car loan or finance agreement with a new car loan to revise your debt repayment schedule. Applying for another loan to repay your old debt is known as refinancing. As the new loan is usually lower than your existing loan, vehicle refinancing may be a way to ‘save’ money on your monthly car repayments. You can also extend the repayment period or negotiate a lower interest rate. Some banks and lending houses also offer the option of refinancing a vehicle that is fully paid up should it qualify.
It is important to understand what the term means and when to refinance a vehicle or not. There is one school of thought that advocates you should rather consider selling your car before you look at refinancing it, but that is not always a simple decision. Refinancing a vehicle is a good option especially if it results in lower monthly payments or a lower interest rate. However, it is important to carefully consider the potential advantages and disadvantages and do some homework for the best loan terms and interest rates before making a final decision.
Advantages of Refinancing Your Vehicle
• Lower interest rate
• Lower monthly payments
• Extended repayment period
• Flexible payment options
Disadvantages of Refinancing Your Vehicle
• Higher closing costs
• Longer loan term
• Potential to increase the amount owed
• Risk of negative equity
For example, if you bought a 2008 double cab that cost you R200 000, your monthly instalment would be R 4 650 over 72 months at an interest rate of 16%. Refinancing it over the same term at 12% interest would reduce the monthly instalment to R2 950, benefiting your monthly budget with a saving of R1,700.
When considering refinancing a vehicle, make sure to consider the following:
• What are the loan terms?
• What is the interest rate?
• What are the closing costs?
• What are the terms of the loan repayment?
At the end of the day, you need to assess your situation and make the most informed financial decision based on that assessment. Refinancing your vehicle can be a great way to save money in tough economic times, but it is important to understand the potential risks and rewards before making a final decision.
