Refinance car loan

If you're deciding whether or not to refinance your car loan, following is some helpful information and things to consider.

What does refinancing your car loan involve?

Refinancing your car loan involves taking out a new loan for your car to pay out your existing loan. It's not buying a new car; it's simply replacing the finance attached to it.

Why refinance my car loan?

Some of the reasons why you might look to refinance your car loan include the following:

  • You want a loan with a lower interest rate to help you save money on interest, and lower your loan repayments.
  • You want to lower your loan repayments by increasing your loan term
  • You want a loan with greater flexibility such as the ability to make extra repayments and access available redraw.

What fees might there be?

The fees you need to be aware of when refinancing your car loan include switching fees such as early loan repayment fees on your existing loan and application fees on the new loan. Different lenders charge different fees so you should check with individual financial institutions as to what fees and charges apply. Note that not all car loans have early repayment penalties.

Things to consider when looking for a car loan

You of course need to assess what your needs are to determine which loan is right for you. Following are some things for you to take in to consideration:

Finding a low interest rate to save money

If the reason you are refinancing is because you are looking to save money on interest, then look for a loan with a low interest rate. You can even secure lower interest rates depending on the age and green star rating of your car. You should also take in to account loan account keeping fees. While small, these fees are usually compounded on to the loan so end up costing you more than what you think over the life of the loan.

When do you expect to have the loan paid off?

If you are trying to pay off your debt as quickly as possible, you will need to look for a loan not only with a low rate, but one that enables you to make unlimited additional repayments at no extra cost.

Are flexible features what's important to you?

If the features of your loan are important to you because you want flexibility, look for loans that allow you to access redraw in case you need it. Whether you pay your loan off quickly or according to the minimum repayments, you may want the security of knowing you won't be penalised either way. Loans that offer no penalties for making extra repayments will give you this peace of mind.

Secured loans vs unsecured loans

A secured car loan means that the vehicle is taken as security for the loan, so that in the event you are unable to meet your repayment requirements, the financial institution will repossess the car.

An unsecured loan means that the vehicle is not taken as security over the loan so there will not be any financial interest showing on the car.

Secured car loans usually offer a lower interest rate than unsecured car loans. You could consider switching from an unsecured loan to a secured loan to enjoy some further savings., depending on the age of your car.

Many loans for newer cars also come with fixed interest options so you can enjoy the peace of mind of having the same low rate for the life of the loan, without your regular repayments changing.

How long do you plan on keeping your car before you sell it?

If you're looking for a loan with a balloon/residual payment at the end in order to lower your regular repayments you need to factor in how long you plan on keeping the car and whether or not you will have the money to pay the residual when it falls due.

If you plan on selling the car before the residual is due, consider what the car's market value will be and whether or not it is likely that you will need to pay out any differences in order to sell it.

Is it worth it?

If you're refinancing your car loan to extend the term and lower your repayments, you'll need to understand that you will most likely end up paying more interest.

Secured car loan interest rates are often more attractive for cars less than 5 years old so you'll need to check whether you can get a similar interest rate to what you're on. If you can't, it might not be worth it.

Once you have assessed the reasons why you'd like to refinance your car loan, you should weigh up the switching costs and how they impact on the benefits you expect to realise. For example, if you're refinancing to save money on interest, you could find that the switching costs erode a lot of the savings you expected to make.

See how much you could save

To see whether refinancing your car loan may be worth it, take a look at our personal loan calculator. You'll be able to work out your repayments and interest payable for different loan options.

To find out more or apply, visit our car loans page or give us a call.

Credit eligibility criteria, terms and conditions, fees and charges apply.

Community First Credit Union LimitedABN 80 087 649 938 | AFSL and Australian credit licence 231204 | BSB 512-170