When you refinance your car loan, you’re essentially closing your current finance agreement to enter a new one (usually, with a different lender). Refinancing can be a complicated and costly experience which is why you shouldn’t tread into it lightly.
Before you apply for a car loan refinance, you need to understand how it works, its benefits, and possible downfalls. In this article, we give you an overview of the hows and whys of car refinance.
How does car loan refinance work?
Refinancing a car loan is like replacing your current car loan with a new one. You’re switching from one car finance to another. Preferably, one with lower rates and/or better terms.
Once your car loan refinance is approved, the outstanding balance on your old car loan will be paid off by the new lender. Early exit fees and other additional charges may apply. When everything on your previous loan has been settled, you’ll start making payments on the new car loan as you would any other loan.
When applying for a car loan refinance, you’ll have to fill out an application loan and provide details about your current loan to your new lender. You’ll have to pay application fees and other related expenses, as well.
Where can you get a car loan refinance?
There are lenders out there who offer car loan refinance options. However, because not all lenders offer refinance solutions, it may be harder for borrowers to find a good deal. If you want to save time and money, using a car finance broker service could be a good idea.
With a car finance broker, you don’t have to search high and low for the best car loan refinance deal. A good finance broker has an expansive network of lenders so that they can get you the best deal possible on your car loan refinance.
Aussie Car Loans, for example, is a full-service finance brokerage that will be there with you from start to finish. This means you don’t have to worry about looking through dozens of lenders trying to find the perfect refinance loan.
All you need to do is discuss your refinance needs with Aussie Car Loans’ expert brokers and they’ll get to work to provide you with a refinance loan suited to your situation. The great thing about working with a finance broker aside from the potential savings is that you’ll have an expert by your side guiding you through the complex refinance process.
Reasons to refinance your car loan
It can be a complicated and costly endeavour, so most may be wondering why people refinance their car loans in the first place. Here are some circumstances when you should consider refinancing your car loan:
Your finances have changed
A change in your financial circumstances could warrant a car loan refinance. If your finances have improved or declined, it may be time to rethink your car loan and look at refinance options. This is especially true if you still have a few years left on the car loan term.
For example, if your finances have improved dramatically, you could save more in the long run if you refinance your existing car loan to one with a shorter term and higher repayment amount. Or you may be having trouble keeping up with your repayments due to a career change, so it may be best to refinance your loan into something more manageable.
You want to change your repayments
If you’re looking to increase or reduce your car loan repayments, a refinance may be a good idea. With a refinance, you’re not limited to simply changing the repayment amount, but you can also shorten or expand the loan terms.
Take note, increasing your repayment amount and shortening the loan term could help you save more money over the life of the loan. Decreasing the repayment amounts and extending your loan term could make payments more manageable, but can also increase the overall interest paid.
You want to get a lower interest rate
Interest rates change over time. Those with fixed rate car loans won’t be affected by rate changes. However, if there’s a significant drop in rates, you could take advantage of that and refinance your current car loan to get the lower interest rates.
Before applying for a car loan refinance, always consider the additional costs. Sometimes, the associated expense of refinancing is not worth the potential savings.
Pros and cons of refinancing a car loan
Here are some of the benefits and pitfalls of a car loan refinance. Always consider the pros and cons beforehand so you can make an informed decision.
Pros of refinancing a car loan
- Save more on your car loan. With a car loan refinance, you have the opportunity to save money by locking in lower interest rates, shortening your loan term, or changing your repayment scheme.
- Fit your car loan to meet your needs. Circumstances change, and a loan that was perfect for you a few months or a year ago may not be compatible with your situation right now. Refinancing lets you find a loan that’s more suited to your needs right now and in the future.
- Get a new lender. If your former lender doesn’t meet your expectations, refinancing your loan gives you an opportunity to find a lender that’s better suited to you.
Cons of refinancing a car loan
- Additional fees and expenses. When you refinance your car loan, you could be subjected to early exit fees, break fees, and the like as you close your former loan, as well as application fees and settlement fees when you open a new one.
- Pay more interest in the long term. If you’re opting to reduce your repayment amount, you’ll be paying more interest over the life of the loan.
- You could end up with negative equity. Refinancing to extend your loan term could lead to you owing more money than the car is worth.
Want to learn more about car loan refinance?
Talk to our expert car finance brokers today! Call 1300 889 669 and learn about your car loan refinance options. If you’re ready to refinance your car loan, you can also get a quick quote online.
