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Can I Change the Term for Refinancing My Auto Loan?

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If you are refinancing your auto loan, there is a good chance you can change your auto loan term. Whether or not you should do this is another matter. Many people who change terms during an auto loan refinance choose to extend the term. By extending the duration of the auto loan, you likely will lower your monthly car payment.

While this sounds great on the surface, it hides a more significant problem: When you extend your loan term, you will make many more individual payments than you would have under the original loan terms. In short, that means you will pay more in interest costs over the life of the loan.

So, while extending your loan term may save you money each month, you may end up paying more for the car than you would have under the original loan terms. At the very least, you may reduce the amount of savings you otherwise would have reaped by refinancing into a new auto loan with a lower rate.

It is also worth noting that extending your car loan term means that you might still be carrying a car payment well into the latter part of your car’s lifespan. That means you might be responsible for car payments when your aging car will require more maintenance and repair costs.

On the other hand, you may decide to shorten your loan term when refinancing your loan. Doing this may increase your monthly payment. If you can accept an increase, there is a good chance you will save money by paying less in interest over time.

A shorter loan term also may result in paying a lower interest rate, which can save you even more cash. In truth, there are pros and cons to both extending and shortening the term of your loan. The right decision depends on your circumstances.