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Refinancing a car loan means applying for a new loan and paying off the old one. You can refinance a car loan to get a better deal with a new lender and to get out of debt faster.
You should aim to refinance to a new car loan with fewer fees and a lower interest rate than your old one. This saves you money.
You have a $20,000 car loan with a 12% interest rate. It's a 4-year loan and after 1 year you've paid off $5,000. This leaves you with an outstanding debt of $15,000 over 3 years.
Since getting the loan your credit score has improved significantly. You are confident you can now get a much lower interest rate.
You find a new loan with a rate of 7%. After comparing the loan fees and repayments, you apply for a new 3-year loan and borrow $15,000.
At 12% over 4 years, your old car loan repayments were $527 a month. With your new, lower-rate loan the repayments are just $464 a month over 3 years.
Here are 3 similar car loans with different interest rates. You can see how the lower interest rate saves you money over time.
| Loan 1 | Loan 2 | Loan 3 | |
| Loan amount | $30,000 | $30,000 | $30,000 |
| Interest rate | 15% | 10% | 7% |
| Loan term | 4 years | 4 years | 4 years |
| Monthly repayment | $835 | $761 | $719 |
| Total loan cost | $40,077 | $36,523 | $34,483 |
Looking at these examples, loan 3 works out to be $2,040 cheaper than loan 2 and $5,594 cheaper than loan 1.
These are just simple examples and don't include loan fees.
Make sure you refinance to a new loan that's both cheaper than the old one and suitable for you.
Look at the new car loan's application and monthly fees, and any discharge or exit fees that come with your old one.
Let's say you have a 5-year loan term. After 2 years you decide to refinance to a new 5-year loan. This means you're actually extending your 5-year debt into a 7-year debt (2 years of the original loan plus 5 for the new one). This means you'll pay more interest over the longer term.
Choosing the right loan term is about finding a balance between manageable monthly repayments and the overall interest you pay.
If the loan term is too long you'll have small monthly repayments but your lender will get a lot more interest from you. A shorter term means higher monthly costs but you'll get out of debt faster.
There are some differences between car loans. Some have fixed or variable interest rates, and some allow you to make extra repayments.
Make sure your car is eligible for the new loan before you refinance. If your car is too old or the wrong model, you might not qualify for a particular loan.
Before refinancing, check your credit score. Many lenders determine your car loan's interest rate based partly on your credit score. If your score is good or excellent you have a strong chance of getting a good deal.
If your score has fallen since you took out the original car loan you'll probably need to improve your score before refinancing.
Cars lose value quickly, especially new ones. This can be a problem when refinancing if your car is used to secure the loan.
If you bought a brand new car worth $32,000 and it loses 10% of its value as soon as it's sold and a further 10% a year, after just 2 years the car would be worth $23,328.
If your car's depreciation outpaces the outstanding loan amount you might have a harder time refinancing. This is less of a problem if you've paid off a good chunk of the loan or if you paid some of the car's total cost upfront.
Every loan application impacts your credit score. Avoid applying for multiple car loans at once. You can only refinance to one loan, so find the best one for you, make sure you're eligible and then apply.
If your credit report has multiple loan enquiries then a lender will consider you a higher-risk borrower. You may end up on a higher rate or have your application rejected.
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I have come to the end of my car loan and have a balloon left on it I have advertised the car privately to sell but not getting any interest as the balloon payment is quite high $35000 I don’t want to get in a situation where I need to buy another expensive car to get a trade price to cover the balloon as my goal is to reduce the monthly car payments as it is having an impact on my finances I’m wondering if my best option is to refinance the car for a 3 to 4 year term the car is a Holden HSV gts and in reasonably good conditions with low kms
Hi Anna72,
I can’t offer you any personal advice as the right option for you will depend on your own situation. However, sitting down and crunching the numbers may be a good place to start.
You can use a car loan comparison calculator to see where you might stand if you choose to refinance, and can also compare some of the available rates and fees using the comparison table on this page.
If you aren’t getting much interest in your car, you could post it on a few different sites – take a look at some of our car selling tips. You can also consider refinancing the balloon payment with your current lender.
I hope this information has been of use.
Thanks,
Elizabeth
Hi there I recently purchased a near new GT falcon for $56,000 at 13% paying around $1100 a month. It’s not the biggest rate or the smallest but because of all the hidden fees and what not the payout figure is roughly around $59000. Would there be any lenders out there that would take over this loan from my current lender. I’m sure i can get a better rate than 13%. Thanks
Hi Mark88,
Thanks for your question.
Before looking for a lender to refinance your car, you may use a car loan repayment calculator to determine the cheaper option.
You may also want to consider a car loan broker. You can find out if you are eligible by using the broker forms from Prolease and 1800 Approved Car Loans.
Before applying, please ensure that you meet all the eligibility criteria and read through the details of the needed requirements as well as the relevant Product Disclosure Statements/Terms and Conditions when comparing your options before making a decision on whether it is right for you.
I hope this will help.
Thanks,
Elizabeth
If I own my car outright bought fir cash are there lenders who will refinance my car which is about 1 year old
Hi Graeme,
Thanks for your question.
Car loan refinancing refers to the process of moving a loan you have with one lender to another lender, as you own your car outright this is not an option for you. If you want to take out a loan and use your car as security, some lenders will let you attach it to the loan as a guarantee.
You can find out more about secured loans and how you can use your car as a security for your loan. Enter the loan amount and loan term and then select calculate to show your loan options. Select ‘Go to site’ to head over to their website to apply.
Please ensure to read through the relevant product disclosure statement and terms and conditions to ensure that you got everything covered upon application.
I hope this has helped.
Thanks,
Elizabeth
Hi,
Is there anyway on refinancing my car?
I currently got a car about 9months ago. Because it was my first, i jumped at the pre-approved loan, not reading the term or anything signed the paper. I have a 27.99% interest on that car loan (spending way too much money) my car was roughly $15,000.00 my repayment is $148.00 a week.
So please if i can refinance my car for lower rate, i would muchly appreciate it.
Kind Regards,
Naz
Hi Naz,
Thanks for your question.
Please note that finder.com.au is an online comparison and information service and is not a product issuer. If you would like to discuss your eligibility or options, please get in touch with a lender on this page.
You’ll need to check with your existing lender and enquire about what fees will be charged if you exit the loan. You may find that the fees will outweigh the potential savings you get by going with a lower interest rate. In this case it may not make financial sense to refinance.
Cheers,
Shirley
is there any way regarding refinancing my car without extra cost?
Hi Khel,
Thanks for your question.
Typically when you refinance you calculate the fees that are payable against the savings that you make. If your savings outweigh the fees then this could be a good indication that refinancing your car is possible without incurring extra costs.
Cheers,
Shirley