Money savvy people always look for ways to save money. There are opportunities everywhere, and you can definitely find them by looking at the right places. Auto refinancing is an excellent one you can pick to reduce your monthly payments, cut down the interest amount, or get better loan norms. When it comes to refinancing, switching to a shorter loan term makes sense. But you have to be sure that you can afford a bigger monthly payment. Still, there are valid reasons that make it a sensible decision. Let us explain why refinancing for shorter-term auto loans makes sense.
Save money in the long run
Long-term auto loans are tempting as you have to pay a smaller amount per month to own your dream car. But you will probably not find them attractive if you see them from a long-term perspective. Dig deeper and do some calculations to find and compare the monthly payments and finance charges for different loan periods. You will definitely want to stick with the short-term loans when you see the difference. Adding a year to the loan term means you would pay more than a thousand dollars extra in interest. Refinancing to a shorter loan definitely makes sense.
Lower interest rate
This one is a no-brainer because lenders often see short-term lending as a safer prospect in the long haul. They are likely to offer loans at a lower rate of interest as compared to one for an extended-term. If you want the lowest auto refinance rates, be ready to opt for shorter paybacks. The option is favorable as you end up paying much less interest once you close the loan term. Interest amount tends to be the biggest concern for money-conscious people, so it makes sense to pay back fast and get rid of the burden.
Build equity faster
Paying down the auto loan faster has several advantages, and building equity is one of them. If you clear it off early, you will probably not owe more than the vehicle’s worth. The factor matters when you consider selling or trading in the car before paying off the loan. A short-term borrowing builds equity faster. There are hardly any chances of becoming upside down in your loan. You can sell or trade in the vehicle without stress and get the price you expect.
Use long-term savings for other things
When you think long-term, short-term refinancing may be a wise decision. You save massive funds on interest differences, and you can use it for other important things. For example, you can use it for buying a house, retirement planning, or funding the education of your child down the line. You only need to be smart with money management and ensure that you do not splurge the savings on something unimportant.
Wise financial decisions can make life easy in more than one way. You end up saving more eventually if you switch to short-term refinancing options, even if you have to pay back more today. Do it if you can, and you will not regret the decision.