A guide to car loan refinance
Explore how car loan refinance can optimise your credit journey, so you move forward with more money in your pocket.
How to refinance a car loan
Car loan refinance enables you to swap out your existing credit with a potentially better bargain. Here’s how refinancing a car works in four simple steps:
- Check out the available options. Nowadays, online searches for motor vehicle finance may be superior. For instance, our comparison table act as a car loan menu that contains competitive offers from various authorised Australian financial institutions. Therefore, it’s easy to view the assortment of choices in one take and make a quick decision.
- Weigh fees against possible savings. Typical fees to consider include exit fees for the old finance and application fees for the new credit. Place the cost of refinancing on one side of the scale and benefits on the other. To justify the switch, the money you save on the new deal should outweigh the overall costs involved.
- Apply for the loan. Visit your preferred lender’s website and submit your online application by clicking “Go to Site.” If all goes well, you will be able to pay off your old debt using the newly approved credit.
- Repay the new credit. You then start making weekly, fortnightly, or monthly repayments.
Why should I refinance my car loan?
Here are some common reasons that may motivate borrowers to hop on the refinancing bandwagon:
- Save money on interest: A lower rate down the line means the total cost of your credit goes down, along with the repayments. Whether you have a car loan for bad credit or a slightly competitive rate, you can still trade-off and get an even cheaper deal.
- Manage your monthly payments: Better debt management could mean switching to a shorter repayment period, and a quick pay-off that downsizes the borrowing cost. Depending on your situation, it may mean changing over to a longer loan term that is lenient on your cash flow.
- Restructure a balloon payment: Some car loans come with large balloon payments that need to be covered all at once when the term ends. If your savings are not up to it, you can spread this lump sum thin and pay it off over a longer term.
- Deal with a better lender: Shifting your loyalty to a different lender may be worthwhile if it means access to better features and more benefits. For example, a new lender may attract you with discounts, top customer service, or a product that has a redraw facility or built-in insurance.
- Capitalise on an improved credit score: Once your creditworthiness climbs up the charts, credit providers may be more willing to offer a marked-down interest rate.
What types of car loans can I refinance?
- Secured/Unsecured: You can switch from a secured car loan to an unsecured car loan or vice versa. Secured loans have lower interest rates, but there’s a risk of losing the car due to non-payment. Unsecured car loans have rates that may be a tad higher, but there’s no risk of losing the vehicle if you default.
- Fixed-rate/Variable rate: You can also convert your finance from fixed rate to variable rate or the other way round. A fixed interest rate is not up for adjustment while you repay your debt, which means your repayments are also locked in. Oppositely, a variable interest has up-down movements that can also cause your repayments to see-saw.
How to compare car loan refinance options
- Comparison rate: Looking at the interest rate when searching for your new loan is only to be expected. But while at it, also check out the comparison rate which wraps up the interest rate and standard loan fees in one percentage. Both the interest rate and fees should be minimal to ensure a low-cost debt.
- Monthly repayments: Our car loan refinance calculator helps you find a payment option that clicks with your monthly budget. You can rearrange the amount and term until you find a favourable option from the comparison tables on this page.
- Extra loan features: Between many financial institutions, you will likely find a stack of features to choose from. If it’s in your best interest to make extra repayments, add a co-signer, or a balloon payment, then you should pay attention to providers who offer these options.
Pros of car loan refinancing
- Interest cutback. A low-interest car loan is a package deal that potentially shrinks the total cost of your debt while offering affordable repayments.
- Flexible repayments. You can choose a longer or shorter repayment period that aligns more with your budget and your objectives.
- Better terms and conditions. By signing up with a new credit provider, you can access more convenient loan features that make borrowing less painful.
Cons of car loan refinancing
- Crossover costs. Exit fees and other switching costs could make the change less economical when factored into the cost-benefit analysis.
- Limited options based on the car’s value and type. Refinancing is typically available on the condition that your vehicle hasn’t depreciated considerably. The amount should at least match the car’s value.
- It depends on the remaining loan term. If you are already close to completing your repayments, refinancing may not be a viable option.
- Refinancing appears in your credit report. It’s generally not advisable to switch back and forth between loans or lenders in order to chase the ultimate competitive offer. That’s because too many applications may affect your credit score and your chances of approval.
Car loan refinance FAQ
When should I refinance?
As a general rule, the best time to refinance is when you find a more competitive deal, and you still have plenty of repayments left before your term ends. In the best-case scenario, refinancing should save you hundreds, if not thousands of dollars.
Which requirements should I meet when refinancing?
A car loan refinance requires you to apply for a new loan, therefore, the general process and requirements are similar to regular car loans. You will need to provide your driver’s licence, proof of residence, and proof of income by way of payslips and bank statements.
Can I refinance a bad credit car loan?
Yes, this option is on the table. However, you might need to conduct a thorough search to find a lower rate. If you are struggling with debt management, you could also consider debt consolidation. With this option, you apply for a new loan which you can use to pay off other debts besides your car loan. Taming your debt this way means you only have to deal with one loan account and, therefore, a single repayment.
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