Guide to refinancing a car loan
When you refinance a car loan, you exchange your current loan for a new one to save on costs or get a better deal. Your new lender will pay off your current loan and you’ll start making repayments towards your refinanced car loan. Essentially, you’re switching car loans.
Refinancing is slightly more complicated than applying for a standard loan. You need to make sure it’s the right choice for you. If you’re on the fence about refinancing your car loan, our guide explains what refinancing entails.
Reasons to refinance your car loan
Here are some of the main advantages of refinancing a car loan:
Lower car loan repayments
Lowering repayments is one of the most common reasons borrowers choose to refinance their car loan. You can reduce your repayments by applying for a loan with lower rates. Or, if you find yourself in a better financial situation, you could qualify for a better car loan deal with lower rates. This effectively reduces your monthly repayments. It also saves you on interest and lowers the overall cost of your loan.
Some borrowers opt to extend their loan terms when refinancing, as well. This does lower the monthly repayments but could increase the interest paid over the life of the loan.
Save on additional fees
Most lenders charge miscellaneous fees such as administrative fees, monthly and annual fees, establishment fees, and service fees. Although seemingly insignificant at first, these extra costs could add up over time and make your car loan increasingly expensive.
When you refinance a car loan, you can try to find a loan that has minimal to no extra costs. This means you can save on extra fees and pay less over the life of your loan.
Change your loan features and terms
Another great advantage of refinancing your car loan is adding loan features. New car loans may offer more flexible and useful features such as additional repayments and balloon payments. These loan features could help you save on the total cost of the loan and lower your repayments.
By refinancing your car loan, you could also add or remove borrowers. If your current loan is a joint account, for example, and you want to remove a borrower, you can do that when you refinance the car loan.
Steps on how to refinance a car loan
Refinancing your car loan is not completely unlike applying for a standard car loan. You still need to submit your requirements and wait for approval. However, the difference lies in how your new loan replaces your current one.
Check out a quick overview of the process to help you navigate a car loan refinance:
- Step 1: Consider your financial situation.
Before anything else, you need to take a look at your finances. Review your credit score, savings, debt, and the like to ensure that a car loan refinance is the right option. You should also look at the current interest rates. Depending on market factors, it could be lower or higher than your current loan.
- Step 2: Make sure you’re eligible.
Usually, if you’re eligible for a car loan, you can refinance your car loan. Some lenders require a minimum loan amount for those applying for refinancing. Check your current loan to make sure you meet the lender’s criteria before applying.
- Step 3: Collect the required documents.
Having the needed documents ready can help hasten the car loan refinance application process. The documents you need when applying for a car loan refinance may include proof of income, proof of residency, paperwork from your current loan, and documents related to your vehicle.
- Step 4: Shop around for the best deal.
Car loan refinance rates and loan features vary depending on the lender. Compare the loans from different lenders to get the best deal possible. Look at the rates from different lenders and take into account the loan terms, conditions, and features. Some lenders may promote extremely low rates only to offer strict terms and pricey hidden fees.
- Step 5: Apply for a car loan refinance
Once you’ve done your due diligence and found the perfect car loan refinance, it’s time to submit your application and wait for approval. At this stage, you should also contact your current lender to arrange to discharge your existing car loan. They may require you to sign a form and provide a final payout figure detailing the amount required to pay off your existing loan. After that, you start paying off your car loan refinance with your new lender.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
