Many people choose to refinance their car loans to change the term of the loan. If the loan maturity period is extended, you will be able to repay the loan over a longer period of time. If the goal is to reduce the loan tenure, you will have to pay more EMIs in a shorter period. Before deciding to refinance a car loan, it is therefore advisable to consider the purpose of the refinancing.
Eligibility for refinancing
There seem to be no minimum eligibility criteria to obtain refinancing of a car loan in India. However, according to market practice, the new lender will consider the following factors when deciding on your loan refinancing application.
Credit score: Your credit score is an indicator of your financial health. As with any loan application, the success of your auto loan refinance application will also depend on how good your credit score is. Lenders usually expect a better credit score compared to the score you had when you took out the original loan.
The car should be worth something: Lenders usually check the condition of the vehicle before deciding to grant a refinanced loan. The age and mileage of your vehicle are factors to consider.
You have not defaulted on your current loan: No one wants to lend money to someone who has no repayments. So, if you are currently behind in your EMI payments to an existing lender, chances are that you are unable to find a bank to refinance the loan.
Benefits of refinancing your car loan
The decision to refinance your car loan in India depends on a number of factors. Before you decide to refinance your loan, you should consider each of these factors. Car loan refinancing can be beneficial in the following situations:
Interest rates have lowered: Due to the fluctuations in the economy, it is possible that you come across a car loan with a significantly lower rate of interest compared to the rate of interest currently paid by you. In order to reap the benefits of a lower rate of interest, you can choose to refinance the loan.
Credit score has improved: Each loan application depends on the individual’s credit score and further decides the terms of the loan. Chances are, your credit score has improved significantly since you took out the car loan. In such cases, refinancing your car loan will give you access to better terms.
Changing the tenure of the loan: Due to changing circumstances, you can change the repayment of the loan accordingly. Refinancing a car loan can help in cases where you can increase or decrease your holding according to your needs.
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