Payday loans have always been marketed as a quick and convenient way for people to get cash between paychecks. Although payday lenders may go after anyone, they usually target traditionally vulnerable populations such as: low-income families, those without a college degree, renters, divorced or separated individuals. Frankly, anyone struggling to pay a bill, like a car loan, may find themselves needing payday loan help.
Moreover, some individuals are just trying to make their monthly car payment on time but paycheck timing is too many days too late. If dismal credit scores prevent them from using credit cards and other sources of fast money, they turn to payday lenders for relief.
Unfortunately, payday loans can hit them with fees for not repaying them in full or on time. As a result, they get trapped in a cycle of debt. Luckily, a certified financial counselor can educate, advise, and empower them to lower their monthly payment and free up cash they could use in other ways.
What Is Car Refinancing?
Car refinancing involves taking out a new loan to repay and get new terms from an existing one. The same car will be used as collateral for the new loan as the old loan. If the borrower fails to pay the loan, the financer will repossess the vehicle to recoup the loss.
Since the refinanced loan is based on a new contract or agreement between the borrower and the financer who refinanced the vehicle, the borrower can expect different and often better terms (duration of the loan, interest rate, and the monthly payment amount).
Compared to payday loans, car refinancing is a less expensive way to get cash, whether to purchase a car or to get out of a difficult financial situation. Furthermore, they may even find lenders willing to refinance for more than their vehicle is worth.
Why Consider Car Refinancing?
Car Refinancing Helps With Sudden Changes in Income
Car refinancing benefits those dealing with sudden loss of income. Suppose someone took out an auto loan to have a vehicle for going to and from work. Suddenly, they lost their job even before paying off the loan, leaving them in a financially vulnerable position.
With car refinancing, they can replace their current car loan with a more affordable one. Since it enables the borrower to buy more time to manage their finances better, car refinancing can be a viable option when dealing with an emergency.
It Can Help Lower Monthly Payments
Besides helping people adapt to unexpected life changes, car refinancing reduces their monthly payments. The borrower pays less each month because refinancing a car almost always means getting a lower interest rate with the same term remaining on the current loan.
However, there is also an option to choose refinancing at a longer loan term. Although this arrangement can significantly reduce monthly payments, it can mean having to pay more interest overall; but interest rates on car loans are typically considerably lower than interest rates on payday loans.