Refinancing car loans

Refinance. Three syllables that can take you from woe to go, getting a better deal on your current car loan and even streamline any other debts into the one loan. 

A refinanced car loan is when you take out a loan with better rates, fees and charges in order to pay off another car loan. 

You can also consolidate numerous loans into the one place with a refinanced car loan. You can choose to do so with your current provider or enter in a new agreement with a new one.

One loan, one lower rate, one repayment plan. It all adds up to a better bang for your buck. 

Why refinance?

Two words. Better terms. 

Over time, life changes, debts can accumulate and interest rates often fluctuate. 

Updating your loan to a new one with a lower interest rate than what you are currently on, makes sense. You’ll lower your repayment amounts and may even change your repayment terms. If you have multiple debts you can pay them off and just use the one refinanced loan for simple, single, monthly repayments. 

Convenience is key. But value is king. You shouldn’t refinance your car loan unless you are going to be paying less for your overall loan. So be sure you are across what your current total loan repayments are, and your exposure to fees and higher interest. Then you’ll be in a position to decide if refinancing now is the right decision for you. 

How to refinance

Making the first steps into refinancing your car loan is a little the same as starting to apply for a car loan all over again. There are key questions you need to answer: 

Loan Amount

How much do you need?

While it’s tempting to ask for more than you really need, it’s better to limit yourself to the essentials - and the loan amount you’re refinancing.

Repayments

How much can you afford? 

It’s time for an update - can you afford more, or less than your current monthly repayment?  Look at your everyday budget to see how much you can afford to put towards repayments each month. Be sure to give yourself a buffer, because life happens (and missing your payments can cost you a lot). And if you think your expenses might change in the next few years (say, if you want to buy a house or a baby might be on the cards), remember to factor those in too. Future you will thank you.

Loan Term

How long will you need to repay?

Simply divide the loan amount by your monthly repayment to get a ballpark amount of the time it will take to repay the loan.

Loan Type

Decide between secured or unsecured?

If you’re willing to put an asset like the car itself or a property up as security against the loan, you can consider a secured loan. This will get you a better rate, however, the lender has the right to repossess the asset if you can’t repay the debt. So just make sure you’re confident in your ability to repay the loan. Your asset will have to meet the lenders requirements too. 

Calculate your repayments

When choosing a new refinanced car loan you may want to consider secured car loans versus unsecured car loans. You’ll need assets for a secured car loan, and they’ll need to be worth more than the debts you’re consolidating. The risk is losing those assets if you default, however if you make your payments on time then the reward is lower interest rates for secured loans. 

Also have a think about fixed versus variable rates. Fixed rate personal loans remain at the quoted rate for the full term so you know what amount you are paying every repayment time. Variable rate car loans traditionally have fewer restrictions and you can make extra payments to pay off your loan early. However, rates and therefore payment amounts can fluctuate, fine if it goes down, costly if it goes up.  

Many online money lenders can provide lower rates than the big banks. If you like to physically go into a traditional bank, then they are not for you.

Do look out for longer repayment terms, though. While interest rates may be lower, over time the outlay may end up being more. 

Compare

Before applying to a lender, always compare provider fees, admin charges and interest rates. A good comparison site will break these down for you. Try our Plenti comparison guide or Canstar also offers comprehensive comparisons. 

Calculate the costs so you know if refinancing is worth it. The important elements to compare on all car loans are comparison rates, interest rates, application fee and loan term. Also enquire about exit fees should you wish to pay out your loan early and default and missed payment fees. The comparison rate will show one figure that encompasses the entire cost of the loan you are researching. 

Apples or oranges?

Now that you roughly know what you’re after, you can start looking around at different refinance options and look at car loans that tick your boxes – comparing apples with apples, oranges with oranges.

Our Car Loan Comparison calculator allows you to compare repayments against other lenders across a wide range of secured car loans from $10,000 to $100,000, to choose the loan that’s right for you.

When to refinance

When interest rates drop you may want to reconsider your debt situation and reduce outstanding amounts with a refinanced loan.

When life is hectic and your debts have multiplied and it’s easier to make one monthly payment rather than five different ones - it could be time to refinance. 

When your credit score improves due to diligently paying off your debts, then you may find out you’ve qualified for a lower rate. Nice one. 

Perhaps you have a new asset that you’d like to put up as security to qualify for a lower interest rate. Refinancing to a secured car loan could make good financial sense. 

Again, do your research, car loan refinancing is more than just a lower interest rate, it’s also about fees and charges and exit penalty rates. Best to calculate how much it’s going to cost you to exit the loan you’re in and enter a new one before you decide.

Who provides refinance for car loans?

Credit Unions, traditional banks, neobanks and online money lenders can all provide you with a refinanced car loan. Many online only banks can offer an interest rate that has been personalized for you based on your credit rating and/or financial history.

If you’ve already got multiple loans with the one institution then it will be easy to consolidate into one. If you have just one car loan and want to refinance it with another from the same bank, then it’s easier to negotiate a more favourable rate than to go through the entire process of refinancing. 

What about my credit score?

This is a chicken or egg style question. Refinancing may improve your credit score, or it may impact it in other less favourable ways. 

When you consolidate your credit cards and car loans into one refinanced loan then your score will improve as you have less open accounts. Then, if you just make your repayments on time, every time, your score will improve again. 

The good news is you can check your credit score for free via a registered agency such as Equifax, CheckYourCredit and Experian.

Be warned, though, the more car loans you apply for, the more it will hurt your score. Do your research, apply only for the one that works for you and then your score won’t be impacted.

Requesting a personal Rate Estimate with Plenti won’t impact your score as it is considered a soft credit check in order to offer a rate specific to you. If you then apply for a loan, we submit a credit inquiry from Equifax and/or Illion and that enquiry may affect your credit score. 

Ensuring you meet your regular payments, even topping up payments, will help keep your credit score viable when you want to borrow more. 

What do I need to apply?

A refinanced car loan is still a new loan, even if you’re paying off an old. You’ll need to provide all the criteria for the loan application including identity documentation (licence, passport, Medicare card etc). Add bank statements, employment history, credit card statements, lease or proof of property ownership and more.

If you’re self-employed you’ll need the last two years of your business and personal tax returns (so have your accountant on speed dial). You’ll also have to show profit and loss statements, bank statements, credit card statements, your lease if you rent, an ATO Notice of Assessment for two years, ABN and the like. 

If you’re choosing a secured car loan to consolidate then you’ll also need valuation certification of your assets. 

Yes, looking into car loan refinancing is a little more work, however with significant savings on offer, well worth your time, even if it’s just to feel reassured you’re already paying a fair interest rate.