How do you refinance a car loan?

How do you refinance a car loan?

If you’re looking for a more competitive interest rate, or your circumstances have simply changed since initially taking on your current car loan, you might be considering your options when it comes to refinancing.

Refinancing your car loan simply means taking out a new car loan to replace your current loan in order to access different loan features that may better meet your needs. It’s a fairly simple task that could potentially be well worth it in the long run.  

Consider the following steps to make the refinancing process even easier:

Step 1: Determine your reasons for refinancing

There are a number of different reasons you might be considering refinancing your car loan. Some of these include:

  • Secure a lower interest rate: If your credit score has improved or interest rates have lowered, you may want to take advantage of this by refinancing to a loan with a more competitive interest rate.
  • Change your loan term: You might want to reduce or extend your loan term to suit a change in circumstances. If you’re able to make higher repayments than you are currently, you might like to refinance on a shorter term to potentially pay your loan off quicker and avoid additional interest charges. Alternatively, if you’re looking to reduce your repayments, you might consider lengthening your loan term. Keep in mind that this could mean paying a higher total amount as a longer term can typically mean paying more interest charges.
  • Access different features: If your current loan doesn’t offer certain features you’d like to access, such as allowing for extra repayments or a redraw facility, then you may consider looking for one that does.
  • Switch to a different lender: If you’re unhappy with the service provided by your current lender, you could potentially find a lender with a better reputation.
  • Add or remove a co-signer: There are a few reasons you might like to add or remove a co-signer from your current loan, one of which is to remove someone with a low credit rating in order to access more competitive loans.

It’s important to have a clear idea of what your refinancing goals are in order to choose the most suitable loan for you.

Step 2: Search and compare available car loans

RateCity makes it easy for you to compare a wide range of car loan options so you can find one that best suits your current individual needs. Be sure to focus on the key loan features that are driving your decision to refinance.

Step 3: Do the maths

Before you make a decision on which loan is right for you, remember to factor in any entry or exit fees that may apply. If one of your refinancing goals is to reduce the total cost over the life of the loan, it’s important to include these fees in your calculations. On the other hand, if you are refinancing to extend the loan term, make sure you understand how much additional interest you might end up paying if you make the switch.

Step 4: Apply online

You might find that the application process is similar to your initial car loan application, but you will also need to provide some extra information on your current lender and details about your car.

Step 5: Await approval

After you submit your application, it’s just a matter of waiting to hear the outcome. If you are approved, you may need to pay any applicable exit fees to your old lender and any potential upfront fees to your new lender at this time. 

Step 6: Use your new loan to pay off your old loan

Following approval, you may be required to organise the paying off of your old loan, if your new lender does not do so. Your lender will be able to answer any questions you may have about this process.

Step 7: Close your old account

Be sure to close your old loan account once it has been fully paid off.

Step 8: Make repayments on your new loan

Finally, you will begin to make your repayments on your new loan for the duration of its term.

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Learn more about car loans

What are loan repayments?

Loan repayments are the regular payments you make to pay off your car loan. Loan repayments generally occur on a monthly basis, although many lenders will also give you the option of making fortnightly or weekly loan repayments.

Where can I get a student car loan?

Student car loans are not a necessarily a product in and of themselves, but what you may be looking for is a guarantor car loan.

A guarantor car loan has a third-party act as a form of guarantee for your loan application, telling the bank or lender that if you default on your loan, someone will pay the loan repayments.

Going guarantor on a car loan is no new thing, and before internet-based credit scores, guarantor car loan applicants would apply for loans with a guarantor or property owner who could vouch for the person borrowing the loan.

To get a guarantor car loan, you’ll need someone willing to act as a guarantor for your car loan.

What is a loan term?

The loan term is the amount of time the lender gives you to repay the car loan. For example, if you take out a $20,000 car loan with a five-year loan term, you would be expected to pay off the entire $20,000 (plus interest) within five years.

What is a guarantor car loan?

A guarantor car loan is a type of loan that features a guarantor on the agreement. The guarantor is a third-party individual, often a friend or relative, who guarantees the loan will be repaid if the borrower defaults on the car loan.

Guarantor car loans are often geared at people who might otherwise struggle being accepted for a secured car loan when purchasing a vehicle. Some of the reasons might include a lack of credit history such as with a student or young person, if there’s bad credit, or age as a factor such as with pensioners.

What is a refinance?

A refinance is when you swap one car loan with another. For example, you might take out a car loan with Lender X because it is the best on the market at the time – but two years later, you might switch to Lender Y because you discover that it now has the best loan. Conditions and fees often apply when you refinance.

How to find a great car loan

Historically, finding a great car loan would require excess research ranging from visiting an excess of websites or making phone calls, but technology has moved on. Using RateCity, Australia’s leading financial comparison service, you can check out great deals from a range of lenders on the one site.

To start, select the amount you want to borrow and the length of the loan, narrowing your search to show just fixed or variable interest rate results.

Once you’ve indicated your search criteria, you’ll see an immediate list of lenders, ranked by interest rate or application fees. You’ll also be able to view the monthly repayment amount for each result, helping you to know what you can afford.

Up to six products can be compared side-by-side, complete with more information about each car loan, giving you more information about your options.

When comparing your car loan options, it’s ideal to keep in mind some points find a great car loan for your needs. Consider the following:

  • Choosing a low interest car loan can reduce costs
  • Selecting an option with low fees and charges is ideal, because these can really add up
  • Be aware of penalties, such as early exit penalties if you pay off the loan sooner than expected
  • Consider the features that best suit your situation

There are many ways to ensure that you get a great car loan. Ultimately, you’ll end up with the best deal by doing your research and selecting the most suitable product for you.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is the role of a guarantor on a car loan?

The role of a guarantor on a car loan is to meet repayments if the borrower of the loan were to default for any reason, such as not being able to afford it.

Useful for loan applicants with poor or bad credit, a guarantor makes it possible for these loans to be made secure, because there’s less risk for a lender overall.

Companies will likely give fair warning before they charge a guarantor for the costs of the loan, or before they repossess anything of the guarantor’s that may have been used as security. Still, it is important for a car loan guarantor to fully understand their responsibilities before they commit to the transaction.

Can I get a loan if I am on aged pension?

Yes, there are certain lenders that provide loans for people on aged pensions. Your viability for a loan will be assessed by a lender by your credit report and your income. They will also take into account any assets you have that you may want to secure the loan with. The better your credit score, the more likely you are to be accepted for a loan, and the lower the interest you will have to pay on that loan.  

If you have a bad credit rating and are on an aged pension however, don’t despair, because there are specialised lenders who still may be willing to provide you with a loan.

What is a commercial hire purchase?

A commercial hire purchase, or CHP, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. Once the final payment is made, you take ownership of the car. 

How much can I get towards a new car as a single parent?

It really depends on your financial circumstances as to how much a lender will grant you towards a new car as a single parent. With most lenders, the smaller the loan you apply for, the higher your chances are of approval, so getting a cheaper car or adding some savings of your own, may be a valid option if you are struggling for approval on a car loan.

Can I get a car loan if I am on disability benefit?

Yes, there are some lenders who will consider your application if you are on a disability pension. As long as you have an income, usually of over $400 a week, there are lenders that are willing to supply you with a loan. There are also microfinancing charitable organisations that provide low interest loans for people on low incomes for certain necessary amenities, such as cars, if they match the specified criteria.

What is a variable-rate loan?

A variable-rate loan is one where the lender can change the interest rate whenever it wants. For example, if you sign up for a variable-rate loan at 8.75 per cent, the lender might change the interest rate to 8.90 per cent the month after and then 8.65 per cent the month after that. By contrast, if you take out a five-year fixed-rate loan at 8.75 per cent, the lender is obliged to leave your interest rate at 8.75 per cent for at least five years.

Where can I find car loans for single mothers?

Single mothers can sometimes find that due to their circumstances the bigger banks can be less inclined to lend to them, but there are smaller companies and specialist lenders who can be willing to provide loans to people in a range of circumstances.

Single mothers could benefit from getting in touch with a car finance broker, as a broker is likely to have knowledge and access to options that are suited to their needs.

Advantages to using a broker:

  • Finance brokers often don’t charge for their services as they work on a commission basis from lenders.
  • Brokers will have industry knowledge and contacts within lending companies and is therefore more likely to be able to find the best deal for your circumstances.
  • Brokers are qualified professionals who are licensed under the National Consumer Credit Protection Act so have an obligation to follow responsible lending practices and to work in your best interests.