Why Not Refinance? (9 Reasons Why)

Car refinancing is typically worthwhile if you can reduce your interest rate by sufficient amounts to save money both now and in the future.

Depending on the terms of your present loan, a rate reduction of 1%, 0.5%, or perhaps even 0.25% can be sufficient to justify refinancing.

But why are a car and other mortgage refinancings not advantageous? Let’s learn more about it right now!

Why Not Refinance?

1. You Will Pay Refinancing Fees

Origination, application, and title transfer fees are just a few of the expenses associated with auto refinancing.

However, not every lender levies the exact charges, and others might not even impose any.

Therefore, compare refinancing possibilities, pay attention to the small print, and account for all fees.

As a result, refinancing your car loan could cost you more than keeping your present loan.

2. A Possibility That You’ll Pay An Overall Higher Interest Rate

Yes, you could save money by obtaining a cheaper interest rate. However, if you lengthen the loan’s term, you risk accruing higher interest overall.

As an illustration, if you had a $10,000 loan with such a 20% interest rate and a 36-month term, you would pay a total of $3,378.89 in interest.

However, you will pay $4,273.96 if you refinance the same $10,000 at a 15% interest rate for 60 months, which is over $900 more.

Further, the convenience of reduced monthly payments can outweigh paying more interest over time. But, of course, everything depends on what is sensible given your financial condition.

3. You Can Find Yourself Upside Down

Being “upside-down” on your loan means that you owe more than the value of your car.

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For example, it might happen if you refinance to prolong your term or withdraw money from your equity.

In addition, you would be required to pay the provider the difference if you choose to trade or sell your car. This sum may be in the thousands of dollars range.

4. Refinancing Affect Your Credit Score

When you compare rates with several lenders over some more extended time, and each strict inquiry lowers your score by around five points, you should expect a 20-point decline.

On the other hand, if you complete all your applications and provide vendors with a two-week window to submit requests, just one serious inquiry will be made of your applications.

That said, it will only lower your score by a couple of points, less than 20, and with timely payments, it will probably increase again soon.

Similar requests can now be clubbed together as one if they have been submitted within 45 days, thanks to new credit scoring.

However, older scoring restricts the grouping period to just two weeks. Given this, it is advised to submit any lender requests as soon as possible—preferably within 14 days.

5. Loan Underwater

Loan Underwater

The potential for going underwater on your loan is among the most significant hazards of refinancing a vehicle loan.

Of course, refinancing raises the likelihood that your car will lose value below the amount you presently owe by lengthening the loan’s term (but not always the scenario).

For this explanation, if your car is older than a particular age, lenders might not even allow auto loan refinancing.

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But, again, comparing lenders may be wise because they all have specific approaches.

6. Extending The Loan

While increasing the repayment period, prolonging the loan term may reduce your monthly repayments.

So, while your car is still losing value, it will take much longer for you to pay off your loan. As a result, you may end up paying for a used car that will cost a lot to fix.

7. Reduced Collateral

Once you refinance your car loan, your automobile is used as collateral, but because autos lose value so quickly, you might be shocked to learn its actual market worth.

In addition, your vehicle may be repossessed if you cannot repay the loan.

Unfortunately, the valuation might not equal the amount still owed on loan, in which case you will be liable for the difference.

8. Your Loan Have Prepayment Penalties

Although the majority do not, specific auto lenders impose fees for repaying the loan prematurely.

You should do some arithmetic to evaluate whether refinancing is a reasonable offer after paying the prepayment penalties on your existing auto loan, typically indicated in the fine print.

9. You Only Had Your Car Six Months Ago

Though you could technically refinance your vehicle shortly after you purchase it, it is still best to hold off for at least six solid months to a year.

It will give your credit score some time to bounce back after getting your first auto loan, establish a payment history, and make up for any depreciation that happened when you bought the car.

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However, it’s doubtful that you’ll obtain a lower rate over what you already have unless you have additional justifications for refinancing.

Once you make your first purchase, it’s critical to understand whether you can purchase a new vehicle again.

Of course, it would be best for you to avoid making the transaction and look for a different option if you have any concerns about your capacity to make the payments.

To know more, you can also read our posts on bad water pump symptoms, Chevy bad alternator symptoms, and Ford Explorer AC not working.


Keep in mind that you have choices. A refinance is not something to hurry into, despite the possibility of financial savings being enticing.

The most effective way to make a knowledgeable judgment is to take the time to do research and weigh both sides of the argument.

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