April 19, 2021
You asked, we answered.
What is Car Loan Refinancing?
In short: It means taking out a new loan to pay off an existing loan.
But there are some things to consider
We go over how car loan refinancing works, some of the benefits and things to consider.
Refinancing can not only result in saving money with a lower interest rate but also lower scheduled repayments meaning more disposable income.
But it’s a case-by-case situation and requires some careful consideration to know if car loan refinancing is right for you.
How does car loan refinancing work?
It’s not uncommon for someone’s financial situation to change – COVID has taught us all that. If someone takes out a car loan, then, later down the track, has a change of circumstances, refinancing can help.
Refinancing can allow someone to pay off their car loan and ‘start over’ with a new loan. The new loan, of course, must offer better conditions. Perhaps a lower interest rate or a longer repayment term meaning lower scheduled repayments.
- Lower interest rates might be available if a borrower has a good repayment history on their current car loan.
- Lower scheduled repayments might result in an extended loan term – longer time to pay off the loan and, therefore, lower scheduled repayments. In many situations, this frees up more funds per pay cycle.
Below are the potential pros and cons of refinancing a car loan.
Car loan refinancing PROS
- Add or remove a co-signer
- Dealing with a new lender
- Lower interest rates
- Longer loan term (with lower scheduled repayments)
Car loan refinancing CONS
- More total interest paid in the long run
- Early repayment fees, entry and exit fees
Often, vehicle finance (like most forms of finance) is not an off-the-shelf product. This means that refinancing may be a good idea for one borrower, but not for another.
Typical things to consider when looking at car loan refinancing
Amount owing and time remaining. You’ll have to crunch the numbers, but knowing exactly how much more you owe and how long it will take at the current rate to pay it off is important. You can get this information from your lender.
Fees. Make sure to fully understand all fees applicable if you pay out an existing loan.
Repayment history. If you’ve missed any repayments on your current loan, you might not get access to low interest rates on a new loan.
Secured or unsecured. Secured car loans use the vehicle as collateral and typically have lower interest rates, unsecured car loans don’t use a vehicle as collateral and typically result in higher interest rates.
When should I refinance my car loans?
The common goal of refinancing is saving money and/or lower scheduled repayments. Make sure to crunch your numbers and be certain that refinancing is beneficial to you.
If you find car loan refinancing is going to be beneficial for your circumstances, you’ll be able to make a decision.
What’s the process?
Step 1
Make sure your current car loan is up to date with repayments. If you’re behind with your scheduled repayments or have missed repayments in the past, refinancing can be difficult.
Step 2
Find out how much you owe on your current car loan, the payout figure and all fees and details. You’ll need this information to make sure refinancing will work for you and to compare options.
Step 3
Compare and evaluate refinancing options. With all the information on your current car loan and an accurate quote on refinancing options, you’ll be able to decide which, if any, are beneficial to your situation.
Step 4
Apply and complete the OnlineLoans simple process.
Other questions and answers that may help
- Can I get a car loan if I already have a personal loan?
- Can sole traders get car loans?
- Do I Need a Driver’s Licence to Get a Car Loan?
- How can I pay my balloon payment?
The next step
Start with a quick quote. These allow you to consider various options and, upon your selection, get the ball rolling.
Stay tuned for more Q&A With OnlineLoans as we clear up car loan confusion.