Since COVID-19 has had a significant impact on the world economy, it's alright to reconsider your decision to apply for refinancing. However, contrary to popular belief, the pandemic is not exactly a bad time to consider auto-refinancing. Thanks to the low interest rates, your decision may actually help you save money.
Should You Consider Refinancing during the Crisis?
Regardless of the situation, most lenders are still accepting applications and making offers. However, since credit unions and most banks are operating under limited circumstances, it is best to apply for car refinance online. You can also have your current lender refinance your loan, but most current lenders do not refinance their own loans.
Pros and Cons of Car Refinance during the Pandemic
- More people with different credit scores have access to lower rates.
- If you refinance for a shorter term, you may end up paying less interest.
- Lower monthly payment means you can ease up on the budget stress.
- Extending your loan means you'll be paying greater interest over the life of your loan.
- Due to the pandemic, vehicle values have gone into flux. Therefore, if your car's worth is lower than before, the lender might see it as a risky deal overall.
When Does It Make Sense to Refinance?
Regardless of the impact the pandemic has had on auto refinancing options, you must also weigh your own pros and cons. You should not consider refinancing your car just because the rates are low. You must take into account other factors described below:
- Whether you have improved your credit score: No matter what the situation is, your credit scores greatly determine the interest rate you will get. The higher your score, the lower your overall interest rate.
- Whether there is positive equity in the car: A lender finds a loan less risky when the loan amount is less than the collateral. Negative equity is when you owe more than your car’s worth.
- Whether there is less debt-to-income ratio: If you have managed to reduce your debts significantly, your debt-to-income ratio becomes more favorable. This lands you a better deal with your lender. A great way to improve this ratio is by paying a credit card off.
The pandemic has played a huge role in determining how car refinancing procedures are carried out and how valuable your vehicle is. However, in the end, lenders consider several other factors when refinancing your vehicle and offer a deal you deserve.