Auto financing can be confusing, especially when comparing auto refinancing to loan modification. Understanding the difference can help you make the best choice for your financial situation.
What is Auto Refinancing?
Auto refinancing involves taking out a new loan to pay off your existing car loan. This new loan usually comes with better terms, like a lower interest rate or a longer repayment period. The main goal is to reduce your monthly payments or total interest costs. While refinancing can improve your financial situation, it may extend your loan term or affect your credit score.
What is Auto Loan Modification?
Auto loan modification is a change to the terms of your current loan. This is often due to financial hardship in extreme circumstances as lenders are not typically open to modifying active auto loans. Unlike refinancing a car loan, auto loan modification doesn’t involve a new loan but adjusts your existing one. This may include temporary reliefs such as skipping payments or making interest-only payments for a short period of time. However, doing so immediately will impact credit score.
Key Differences
There are a few key differences between auto refinancing and auto loan modification. Let’s explore what they are.
Purpose
Refinancing a car loan aims to improve loan terms; modification addresses financial difficulties.
Eligibility
Refinancing depends on credit score and vehicle value; modification is based on financial hardship in extreme cases.
Loan Terms
Refinancing creates a new loan with potentially new, potentially better terms; modification adjusts the current loan.
Credit Impact
Auto refinancing involves taking out a new loan to pay off an existing one, which can temporarily lower your credit score due to hard inquiries and account changes. In contrast, loan modification adjusts the terms of your current loan without a hard inquiry, but the implications of the modification are likely to impact credit score negatively.
Choosing the Right Option
The first step in choosing between auto refinancing and auto loan modification is to evaluate your financial situation and goals. The choice to refinance a car loan might be better if you’re looking to save on interest, while exploring modification could be preferable if you’re facing immediate financial struggles and it’s available to you. Consulting with a loan advisor is the best way to get professional advice tailored to your unique situation.
Gravity Lending Has the Answers to All Things Auto!
Understanding whether auto refinancing or auto loan modification is right for you depends on your financial needs and goals. Assess your situation carefully and seek professional guidance to make the most informed decision.
The team at Gravity Lending can help you make the right decision about your auto finances. Contact us today to learn more.