Will refinancing my car loan lower my repayments?
Refinancing your car loan can help you lower repayments and save on total loan costs — but these aren’t guaranteed. It depends on your current car loan, your financial situation and the type of car loan refinance you decide to take on.
How does a car loan refinance lower your repayments?
When you have a fixed-interest rate car loan, your repayments throughout the loan term are the same. This could be a problem for borrowers whose financial circumstances have changed or who want to lessen their expenses. Borrowers with a variable car loan may also find themselves in a similar situation where their repayments remain high but their financial circumstances have changed. This is where refinancing can come in and help lower your repayments.
Get lower interest rates with a car loan refinance
If you refinance your car loan, you’re exiting your current loan and taking out a completely new one. This can allow you to change your repayment amount into something lower or more manageable. You can lower your repayments by finding a car loan refinance with better interest rates. The lower the interest rate, the less you have to pay during your monthly, fortnightly, or weekly repayments. A better interest rate also means reducing the cost over the life of the loan which saves you money in the long run.
Lengthen loan term with a car loan refinance
Another way that a car loan refinance can lower your repayments is by extending the loan term. You’ll have to exit your current loan and enter into a new car loan refinance with a longer loan term than your previous one. To paint you a clearer picture, say for instance that your original car finance only has a three-year loan term, when you refinance your car loan, you can opt for a loan that’s four years or longer to spread out your remaining loan balance and effectively lower your repayments.
Take note that extending your car loan term could lead to paying more interest over the life of the loan. Use an online car loan repayment calculator to see how the loan term and interest rate affect the cost of your loan.
Adjust car loan repayment schedule by refinancing
You could also lower your repayments by changing your repayment frequency. If you’re paying monthly, for example, you can reduce that to only fortnightly or weekly payments. This helps decrease the loan's yearly cost, making it more manageable. You could also use a repayment calculator to better understand how modifying repayment frequencies can impact your car finances.
Often, borrowers switch lenders when they refinance their car loans. However, you can still speak to your current lender to learn more about your options and what they can do to help you lower your car loan repayments. Some lenders, like loans.com.au, allow borrowers to change their car loan frequency as many times as needed, which can be self-managed on their online Smart Money account
Factors to consider when refinancing your car loan
Refinancing your car loan can sometimes be a long and complicated process. It’s not something you should take lightly. Before applying for a car loan refinance, you need to make sure it’s the right choice. Here are factors you must consider when refinancing:
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How much you’ve already paid. If you’ve paid off most of your loan, taking out a car loan refinance just to lower repayments for the remaining loan term could do more harm than good.
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Remaining years on your loan term. Although it is possible to refinance a loan whenever you like, it’s recommended to wait at least six to twelve months after the first repayment has been made. It also may not be wise to refinance a loan that’s almost at the end of its term because you won’t be able to reap all the benefits.
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Interest rates. Look at the current car loan interest rates being offered to see if you can get a better deal. If rates have dropped significantly since you took out your car loan, it may be a good idea to refinance.
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New loan features. The goal of refinancing your loan is to get the most out of your car finance. Find a loan with features that weren’t available with your previous lender and can help you achieve your financial goals.
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Exit fees and new loan application fees. Refinancing a car loan can be costly with early exit and termination fees from your previous lender. Add to that application fees, admin fees, and the like from your new one. Be aware of these additional costs and figure out if refinancing is still worth it.
How to find the ideal car loan refinance
The best way to find a good car loan refinance is by shopping around and comparing different loans and lenders. Asking about interest rates, loan features, as well as looking at comparison fees will let you know whether a car loan is worth going through the whole refinance process for.
Learn more about your car loan refinance options at loans.com.au!
If you want to know more about car loan refinance, speak with our friendly lending specialists! They’ll be more than happy to walk you through our range of car loan refinance options to help you find one that’s perfect for your needs.
If you’re ready to refinance your car loan, apply online today!
Find out in under 2 minutes if you qualify for one of our low rate car loans.
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.
