Refinancing a car loan

Your car loan may only run for a few years but that doesn’t mean you should miss the chance to put some more money in your pocket over that period.

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Car Loans > Car Loan Refinance

How does a car loan refinance work?

Why refinance?

The cost of car loans can vary wildly, which means that getting the right car loan can be just as important as getting the best deal on the car itself.

Many people take out a high-cost car loan at the dealership when they buy their car, just because they want the vehicle now and haven’t planned ahead and sorted out finance before they walked in.

Even if you shopped around and got a good value car loan a few years ago, the market constantly changes and your loan may not suit your current needs.

If you are stuck with a high-interest car loan for any reason, you may be able to cut your repayments with a low-interest car loan refinance from an online lender.

You can cut the size of your regular repayments either by getting a lower interest rate or by extending the term of the loan.

So should you refinance? Let’s look at the pros and cons.

What are the pros and cons of car loan refinance?

When you refinance your car loan, you borrow money from a new lender to pay off your current car loan lender. You then repay your new lender over time according to the terms of the new loan contract, which should suit your needs better.

Potential pros of refinancing a car loan:
The key benefits of refinancing can include:

Lower interest rate
A new lender can give a lower interest rate on the new loan compared to your original car loan. A lower interest rate will reduce your regular repayments and leave more money in your pocket.

Longer loan term
You can cut your regular repayments by extending your loan term. Each repayment is lower because the repayment of the loan principal is divided by more months.

Add or remove a co-signer
You may want to remove a co-signer from the loan or to add one, which can get you a better interest rate if you have bad credit.

Get a new lender
If you find your current lender difficult to deal with, you may be able to improve the situation by getting a new one.

Potential cons of refinancing a car loan:

More total interest
If you negotiate a longer loan term to reduce repayments you could end up paying more in the long run. This is because you will have money outstanding for longer so you will pay more interest.

Entry and exit fees
If you find your current lender difficult to deal with, you may be able to improve the situation by getting a new one.

Options

If you want to get the most out of a refinance you will need to understand the different types of car loan that you can get before you consider how to refinance a car loan. These are the main things to understand.

Car Loan Term

You have to repay a car loan within an agreed period of time called the “term”. These terms vary although they are rarely more than five years. Loans.com.au offers loans with terms of 3,4 or 5 years.

Fixed vs Variable

Fixed

Most car loans are fixed rate. That means the interest rate is locked in for the term of the loan. This offers the advantage that your repayments will not go up or down so it is easier to budget and you can’t get caught out with higher-than-expected repayments. The downside is that if you want to make extra repayments or to pay off your loan early you may have to pay a fee. Loans.com.au only offers fixed rate car loans.

Variable

Some car loans come with a variable interest rate. That means the rate can go up or down at the discretion of the lender. Lenders usually adjust their rates because the Reserve Bank has changed its official cash rate, or because of changes in the cost of funding. If rates change, your repayments will also move up or down.

Secured vs Unsecured

Secured

A car loan is secured if you put up your car or another asset as security for the loan. This usually gets you a lower interest rate but it also means that if you fall behind in your repayments, your lender can seize the vehicle and sell it to get their money back.

Unsecured

These usually charge a higher interest rate and are harder to get because the lender is taking a bigger risk. You will have to prove your personal credit worthiness as the lender has no asset to sell if you fail to make repayments. Loans.com.au does not offer unsecured car loans.

What is a balloon payment?

A balloon payment is a feature where you make lower monthly repayments and then a much larger repayment at the end of the loan term.

This may help you afford a better car because of the lower monthly repayments. You can then trade in your vehicle at the end of the loan and use the money to repay the outstanding balloon.

When should you refinance?

If your aim is to save money by refinancing, there is no time like the present. Once you are confident that your interest savings over the term of the loan will exceed fees from refinancing, why wait?

How to compare refinance rates

The key number when considering the real cost of a car loan is the comparison rate. The comparison rate includes both the interest rate and fees relating to the loan and rolls it all up into a single annual percentage. This makes it easy to compare the cost of different loans.

Car Loan Calculator

To work out your repayments on a loan you are considering, check our handy car loan calculator below.

How to use the calculator

Use our Car Loans Calculator as a general guide to what your repayments are likely to be on your new car loan.

The Car Loans Calculator will also tell you how much you may pay in total over the life of your loan. To use this Calculator, just entered your estimated vehicle value, loan term, any initial deposit, and the amount of any balloon payment (a lump sum payment payable at the end of the loan).

Loan amount

Vehicle purchase price

Initial deposit / trade in

Loan term

Interest rate

Balloon repayment

Repayment frequency

Personal or Business

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Your estimated repayments are

$ 0,353.07 monthly f/nightly weekly

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Steps to refinance

Before you can do an easy car refinance, first you have to decide whether you want to refinance at all. If you’re thinking about it, here are the steps to take to make your decision.

Get current on your loan
If you are behind in repayments on your current loan you won’t be able to get a new loan at a reduced rate, so make sure you are up to date in your repayments.

Find out your current debt amount
Call your current lender and ask for the pay-off amount. You will need to tell other lenders this amount so they can approve a new loan.

Shop around for refinancing deals
The best place to find refinance car loan rates is online because you can easily check out a lot of lenders quickly and online lenders like loans.com.au often have the lowest rates. People often find it more convenient to refinance a car loan online.

Always evaluate fees versus savings
Find out what fees you will incur by refinancing. Your old lender may charge a discharge fee and your new lender may charge an application fee. Add up the fees and see if you are still saving money overall. You can plug a few simple details about your current loan and the loan you are considering into our calculator to find out how much you could save by refinancing.

Apply for a loan
Once you have decided to refinance, simply apply for a loan with your new lender. Refinancing with loans.com.au is an easy three-step process.

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Term

Description

Comparison rate

This interest rate factors in all fees and charges over the life of a loan, so you can easily compare it to other loans.

Early loan repayment penalty fee

A fee your lender may charge if you pay off your loan early.

Establishment fee

A fee your new lender may charge to set up a loan.

Extra loan repayments

Any additional loan repayments you make above the agreed amounts in your contract.

Ongoing fees

Any fee that is payable periodically over the term of the loan (loans.com.au does not charge any ongoing fees).

Refinance

When you change car loan lender to a new provider.

Secured loan

When your car acts as security against the loan, so your lender can sell it to recover their money if you don’t make your repayments.

Fixed interest rate

An interest rate that doesn't change over time.

Variable interest rate

The interest rate may fluctuate up or down.

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