Being locked into a less than favourable loan or lease isn’t a situation most of us wish to stay in, making refinancing your existing vehicle loan a great way to investigate the benefits of revisiting your term agreement. Knowing when to do so, however, makes all the difference in following through with your plan and can easily help to alleviate some of the financial stresses, especially if related to your transportation-dependant business.
Organizations may choose to refinance for a variety of reasons, but the gist usually remains – refinancing allows you to free up capital by choosing an optimal loan agreement. Maybe you’re in the business of renting luxury cars to high-end clientele, or you lease/finance a basic company fleet for business use, or it’s simply your own personal vehicle – refinancing may help you to lower your monthly payments and access a better interest rate for your business. But like all financial business decisions, it’s crucial to investigate both the pros and cons of refinancing and determining whether or not it’s the right time to crunch the numbers.
What Is Vehicle Refinancing?
This is one of the biggest questions in automotive financial circles. Refinancing your vehicle loan means your business opts to take out a new loan to satisfy the existing borrowing agreement by using the vehicle as collateral to secure a new loan. With the new loan, the borrower may renegotiate the terms of their previous loan to benefit their cash flow in terms of a reduced monthly payment, a lower interest rate depending on current market conditions, or shorten/elongate their current borrowing timeframe.
In addition to taking advantage of better advertised interest rates, you can also opt to apply for refinancing when your company credit score improves. For new businesses that have been approved for a vehicle loan with little to no credit history, refinancing can be extremely beneficial in negotiating better loan terms as your credit health improves, and as payments consistently come in on time. For many businesses, refinancing means adding peace of mind, and clearing unnecessary financial stress to focus on the aspects of business that truly matter.
Further, refinancing a vehicle loan, unlike a traditional mortgage loan or consolidating debt, is usually a quick and straightforward process. As a general rule, there are usually some minimal fees that apply to refinancing.
How Does Refinancing Benefit Businesses
The benefits of reduced monthly payments speak for themselves. A refinanced loan may free up valuable capital needed to finance additional vehicles, satisfy other financial obligations, or add dollars to the monthly operating budget.
Lower interest rates can equate to considerable savings on a similar loan term, wherein your business ends up paying less interest when your loan amount is finally paid off. This can be accomplished by smaller interest rates, and also by extending loan durations – therefore, it’s critical to pay attention to financial markets to take advantage of these opportunities.
Longer borrowing terms may help to reduce monthly payments by stretching the loan term out over a longer period of time. This may result in your business paying additional funds in interest, but can benefit many businesses in the short term. Meanwhile, shortening the duration of your renegotiated loan may increase your monthly payments, but reduces the total amount of interest paid and therefore, the total amount of what the borrower pays for the vehicle(s).
Let’s imagine you take a loan for $25,000 on a vehicle and are one year into a 5-year term at 15% interest. That gives you a monthly payment of about $595. If you refinance that into a 4-year loan at 6% interest, your payment drops to $587. An even longer refinance term of 72 months further reduces your payments to $414 per month. That’s an average monthly savings of about $200, and an annual savings of over $2,100.00
The Auto Finance team at Travelers Finance are experts who are capable of securing newly refinanced loan terms for our customers with confidence and ease. We can get you the car lease or loan that you need so you can enjoy lower monthly payments and tailor your finances to what