Refinancing Definition, Benefits, and Downsides
If you’re in the loan game, you may have heard the term refinancing. People in Salisbury, MD sometimes like to talk about how they refinanced this or that loan, or how you should consider refinancing your loan. Our financing team here at Pohanka Toyota sometimes fields the question: what exactly does refinancing mean?
Refinancing is the act of replacing an existing loan with a new loan that pays off the first one. The idea is for the new loan to have better terms or features than the first so that you end up in a better financial situation. Just about any debt can be refinanced- auto loan, home loan, you name it.
Looking to refinance your car loan? Pre-apply with our financing center to see your options!
How do I refinance?
If you’ve decided you’d like to refinance, start by shopping around for lenders, and look for one that offers better loan terms than what you currently have. Then, apply for a new loan with the new lender of your choice. If you’re looking to refinance your car loan, we recommend looking into our financing center here at Pohanka Toyota!
If the new lender accepts your application, the new loan will pay off your existing debt. Then, you simply must make payments on the new loan until you pay it off or refinance once again.
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When should I consider refinancing?
Refinancing can be a good idea when your existing loan is too expensive or too risky. Your financial circumstances may have changed since you first borrowed, or more beneficial terms may now be available to you.
What are the downsides of refinancing?
Refinancing a loan can be expensive: there can be fees that vary by lender and state. There also may be downsides to the new loan that you don’t initially notice.
What effect can refinancing have?
Refinancing can be used to switch to a shorter-term loan if you’d like to pay off your debts sooner. On the flipside, it could also be used to extend the repayment time frame, though this might result in paying more in interest. It can also be used to consolidate multiple loans into a single loan.
What does refinancing not do?
Refinancing does not typically reduce or eliminate the original debt. More often, additional debt is taken on. It also does not protect you from repossession of property.