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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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This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.

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