Car loan refinance works similarly to other types of loans. Once you’re approved for finance, the funds from your new loan will pay off your existing car finance debt. Afterwards, you start payments on your refinanced car loan.
If you’re thinking of car refinance, here are a few things you need to know:
Can you refinance a car loan?
Yes, it is possible to refinance your car loan. You could refinance your car loan if the title and registration of the vehicle have been processed. However, it’s best not to refinance a car loan right away. The general advice is to wait at least 12 months after taking out the original car loan before refinancing.
Waiting at least 12 months to refinance gives you time to recoup the credit score points you lost when applying for a car loan. After 12 months, you could be in a better financial position and find better rates.
Should you refinance your car loan?
Car refinance could either save you a lot of money or burden you financially. It all depends on your financial situation, the state of your current car loan, and what you want out of your car refinance.
Car loan refinance could be a good idea if...
-
You’ve found car loans with better rates and terms. Interest rates could drop significantly since receiving your current car loan. Or you’ve bumped up your credit score and are eligible for better rates.
-
You want to change your repayments. Reducing the amount of your repayments or changing your repayment frequency, could free up some cashflow.
-
You want to modify your loan term. When you refinance a car loan, you could reduce your loan term and pay off your loan earlier than originally planned.
Car loan refinance may be a bad idea if...
-
You’re nearing the end of your loan term. A car refinance doesn’t make sense if you’ve already paid off most of the loan balance. The costs of refinancing could be higher than any potential savings.
-
Your car’s value is less than your car loan’s outstanding balance. If the value of your car is less than the amount you owe on your loan, refinancing may become a challenge.
-
Your car refinance costs outweigh the savings. Refinancing can be costly and time-consuming. Some fees involved with car refinance include break fees, exit fees, and application fees.
Understand the potential risks and rewards of refinancing your car loan. Consider your options carefully to figure out if car refinance is ideal for your current situation.
Advantages of refinancing a car loan
Here are the main benefits of car loan refinance:
Better interest rates
Lenders may come out with new car loan offers that weren’t available when you first got your car loan. You may get lower interest rates when you refinance. With lower rates, you’ll have lower monthly repayments and save on interest over the life of the loan.
More flexible loan features
When refinancing your car loan, you could add certain features and modify your loan term. You could add a balloon payment, allow for early payments, and change the repayment frequency to suit your current needs. You can also reduce or lengthen your car loan term.
Change co-signers
Because a car loan refinance is a new loan altogether, you can add or remove a co-signer from the loan. Having a co-signer could help you get a better interest rate if you don’t have great credit.
Disadvantages of refinancing a car loan
Some disadvantages of car loan refinance include:
Pay more in interest
If you lengthen your loan term to reduce repayments, you might pay more interest over the life of the loan. Even though you’re paying lower monthly, the accumulated interest on your loan could be higher.
Additional fees
Refinancing your car loan involves a fair amount of fees. You have to pay exit fees and early termination fees for your current loan plus the application and entry fees for the car loan refinance. These additional costs may put a strain on your finances.
Thinking of refinancing your car loan?
Get in touch with CarLoans.com.au today to learn more about your car loan refinance options. Call 1300 889 669 or schedule an appointment with one of our expert brokers. We’re here to help you find the best solution for your car finance needs.