What does it mean to refinance a title loan? How can you benefit from refinancing your title loan? Here’s what you need to know:
What Happens When You Refinance A Title Loan?
Refinancing a title loan is the process of taking out a new title loan to pay off your existing title loan. So although you are taking out a new title loan, you will not make payments on two title loans. Instead, the new title loan will replace the old title loan.
For example, say you have a title loan with lender A and you refinance the loan with lender B. If your refinancing application is approved, lender B will pay off your remaining debt with lender A. Now, you are no longer bound by the terms of the title loan agreement with lender A. This debt has been cleared, so you will only need to make payments to lender B for your new title loan.
What Are the Benefits of Refinancing A Title Loan?
There are many benefits to refinancing a title loan, including:
- Better Interest Rate
- Lower Monthly Payment
- Avoid Default
- Borrow Additional Money
Better Interest Rate
An interest rate is the cost of borrowing money, or to put it in simpler terms, the amount that a lender charges to borrow its money. The higher the interest rate, the more you will pay over the course of your loan.
Many people choose to refinance title loans to secure lower interest rates. If your current title loan has an extremely high interest rate, you may want to consider refinancing it to obtain a better rate. Lowering your interest rate could save you a significant amount of money over the course of the loan.
Not everyone will qualify for a lower interest rate, though. Your credit score will play an important role in determining your interest rate. If your credit score has improved significantly since you took out your title loan, you might qualify for a lower interest rate now.
For instance, say your credit score has improved by 30 points since you took out a title loan with lender A. Because of this improvement in your credit score, you might qualify for a lower interest rate now.
Lower Monthly Payment
A portion of every monthly title loan payment goes toward the principal, which is the amount of money you borrowed from the lender. The remaining portion is used to pay interest, which is calculated using the agreed upon interest rate.
If you qualify for a better interest rate, refinancing may lower your monthly payment since you won’t need to pay as much toward interest each month.
If you don’t qualify for a better interest rate, there is one other way that refinancing could help you lower your monthly payment. The loan term, or the amount of time you have to pay off the loan, also affects your monthly payment. You may be able to lower your monthly payment by refinancing your title loan and extending its term. The longer the length of your title loan term, the less you will need to pay every month. However, you need to keep in mind that your loan will cost more in interest the longer the loan is outstanding.
Lowering the monthly payment could make paying off your loan more manageable, so it’s a good option for people who are struggling to afford their current title loan payments.
Refinancing can help you clear your debt with a lending so you avoid the consequences of defaulting on your original title loan. If you are falling behind on payments and in danger of losing your vehicle, discuss your refinancing options with a title lender right away to avoid defaulting.
If you take out a title loan, the lender will put a lien on the title to your vehicle until your debt is completely paid off. If you fail to repay your debt according to the terms of the agreement, which is known as defaulting, the lender has the right to take possession of your vehicle.
No borrower wants to default on a title loan and lose their vehicle. To avoid defaulting on a title loan, consider refinancing the loan with another lender.
Borrow Additional Money
Some borrowers may be able to borrow additional money by refinancing an existing title loan. However, this will depend on a number of factors, including the value of your vehicle and the amount you still owe on your current title loan.
For example, say you are eligible for a title loan of up to $5,000 based on the value of your vehicle and you still owe $2,000 on your current title loan. In this case, you may be able to borrow an additional $3,000 if you choose to refinance your current title loan.
This makes refinancing a good option for people who are unhappy with the terms of their existing loan and in need of additional cash.