So I got a car recently, and the dealer and my parents agree that refinancing will be a good idea soon. How does it make sense for another creditor to buy your credit and give you a better rate? Why would the original creditor not just keep you on the hook for the worse rate?
In: Economics
>Why would the original creditor not just keep you on the hook for the worse rate?
Because you generally can pay off your loan at any time. It almost never galena that you have any early payoff penalty. So the original lender can’t stop you from paying it off early.
You could buy a new car by getting a loan, then come into enough money to buy it for cash a month later, and they can’t stop you from paying it off.
So the new lender gives you a better rate. They now get your monthly payments and the interest in the loan until such time as you pay it off early or at the end of the loan.
The key here is that there is no penalty for paying off a loan early. If there is, then yeah, refinancing likely isn’t your best option.
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