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Refinancing a car loan simply means switching from one car loan to another, usually with a different lender. This could be done to access cheaper interest rates, lower fees, or easier payment options to help you pay off your car loan sooner. Refinancing could save you hundreds or even thousands of dollars on your car loan, depending on how much you've borrowed. 

Why do people refinance car loans? 

  • To save money: A car loan with lower interest rates or fees could help you enjoy cheaper car loan repayments. If your credit score has improved since taking out your current loan, you may now be able to access a more competitive rate.
  • To manage a balloon payment: Sometimes dealer finance lets you enjoy lower monthly car loan repayments by adding a large balloon payment to the end of your loan term. Rather than paying it back all at once, refinancing your balloon may let you spread your payments over a longer term. 
  • To join a better lender:Switching your car loan to a new lender could let you enjoy discounts on other offers, better customer service or other add-ons. 

Is it easy to refinance a car loan in Australia?

Refinancing a car loan is a fairly simple process, and is much the same as applying for an initial car loan. 

The way it works is that a borrower with a current car loan submits an application for a new car loan that they've selected. Once approved, they will use that money to pay off the initial car loan with their current lender, then simply start making repayments on the new loan.

How do you refinance a car loan?

Before you jump into applying for a new car loan to replace your old one, it's important to go through the same process that you would have initially. Consider following these steps to refinance your car loan:

  1. Search and compare - Arguably the most important step when refinancing a car loan, comparing products can help you figure out which options will genuinely save you money and offer you the features you're looking for. The filters on RateCity's car loan comparison tables, like the one on this page, can make this even easier by allowing you to narrow down your search.
  2. Do your calculations - Another tool that can be helpful when determining whether refinancing will offer you genuine savings is a car loan calculator. RateCity's car loan calculator can provide you with a repayment estimate for your preferred loan products, making it easy to compare to your current repayment amount.
  3. Check the eligibility criteria - Once you have compiled a shortlist of potential car loans, check the credit providers' lending criteria to ensure you're eligible for your preferred loan. Keep in mind that these can differ from one loan to the next.
  4. Prepare your application - Once you've selected your preferred loan product, it's time to begin the application process. It might be a good idea to have all of your required documentation ready before you get started.
  5. Await approval - After you've submitted the information required, it's time to wait for a response from the lender. Car loan approvals can happen in as little as a few hours to as much as a few days.
  6. Begin paying off your new loan - When you've received approval and the funds are in your account, the final step is to pay off your old loan, ensure the account has been closed, and then begin making repayments on your new car loan.

What are the main features to look for when refinancing a car loan? 

Interest rate: The cost of having the money that you'll pay back to your lender each year. This may be set at a fixed rate that keeps your repayments the same, or a variable rate that could rise or fall.

Comparison rate: An estimate of your car loan's overall cost, including interest charges and standard fees.

Fees: Car loan fees can include upfront application fees, establishment fees, early repayment fees and other ongoing monthly fees. You may also need to pay fees to use certain features, such as a redraw facility or exit fees for paying off the loan early.

Security: Secured car loans use the car's value to guarantee the loan, which can mean lower interest rates. Unsecured car loans may be more flexible, though their interest rates may be higher. Keep in mind that most lenders will have an age limit for securing used cars.

Extra repayments: Some lenders let you pay extra onto your loan when you can afford it. This can reduce the interest you're charged, and bring you closer to exiting the loan early.

Redraw facility: Car loans that let you make extra repayments may also let you redraw money from your car loan when you're ahead on your repayments and find yourself in need of cash.

How much could you save refinancing a car loan?

The amount you could potentially save by refinancing your car loan is primarily dependent on what your current loan's interest rate and ongoing fees are in comparison to the loan you wish to switch to.

In addition, the loan term can affect how much you save over the life of the loan. If your initial loan is on a five-year term, and you're two years into that term, the key is to only take out a new loan on a three-year term in order to see true savings. That way you are still paying your loan off over a total of five years. 

If you were to switch to another five-year term after already having paid off two years of your initial loan, it would take you a total of seven years to pay off your car loan and will likely mean paying more in interest charges over time despite a lower interest rate.

To work out how much you could potentially save on your monthly repayments with a car loan refinance, consider using RateCity's Car Loan Switch & Save Calculator. Simply enter the loan amount still owing on your existing car loan in the I want to borrow field, along with the number of years remaining on your existing loan term, and the interest rate offered by your preferred new loan provider.

What are the pros and cons of refinancing a car loan?
  • Lower repayments: Switching to a car loan with a lower interest rate or fewer fees may make your monthly repayments more affordable.
  • Better loan features: The right features could make your new car loan much more flexible.
  • Better service: Lenders offering better customer service or more convenient options could make your life easier.
  • Pay more interest over longer term: If you refinance to a car loan with a longer loan term, your repayments may be lower. However, your loan will take longer to clear, so you may pay more in total interest charges than on a shorter-term loan.
  • Switching costs (exit and upfront fees): The cost of break fees for leaving your old car loan and/or upfront fees for starting your new car loan could make refinancing less cost-effective when considering the total cost of the loan.
  • Car age/model may limit available loan types: Some secured car loans may be limited to newer cars whose value can cover the loan. Refinancing to an unsecured loan for an older car could mean paying a higher interest rate.

Frequently asked questions

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 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.

What is an unsecured car loan?

An unsecured car loan is a loan that is not connected to a form of security, or collateral. Not all lenders provide unsecured car loans – and if they do, they generally charge higher interest rates for their unsecured car loans than their secured car loans.

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.

Can you put a deposit on a car to hold it?

It’s up to individual car dealers to decide whether to promise to hold on to cars in exchange for deposits.

Some car dealers will request a deposit and promise, in return, to hold on to the car for a certain period of time. Others will request a deposit but make no guarantees, other than to return the deposit if they end up selling the car to someone else.

Some car dealers ask for deposits; others don’t. If you get asked for a deposit and you decide to pay it, make sure the dealer gives you signed paperwork before you make the payment and a receipt after you’ve made the payment.

What is collateral?

Collateral, or security, is an asset you agree to surrender to a lender if you fail to repay a loan. Generally, the collateral for a car loan is the car itself. So 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 salary packaging?

Salary packaging is an arrangement you can make with your employer that can allow you to buy a car from your pre-tax salary. The advantage of salary packaging is that it will redue your taxable income.

What is the principal?

The principal is the value of the loan that is still outstanding. So if a borrower takes out a $20,000 loan, the principal is $20,000. If the borrower repays $5,000 in the first year, the principal is now $15,000.

What is an LVR?

The LVR, or loan-to-value ratio, is a percentage that expresses the amount of money owed on the car compared to the value of the car. For example, if you take out a $15,000 loan to buy a $20,000 car, you have an LVR of 75 per cent. LVRs change over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, although there would still be a $5,000 difference between the size of the outstanding loan and the value of the car, the LVR would now be 67 per cent.

What are repayments?

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

What is equity?

The equity is the share of the car that you own. For example, if you take out a $15,000 loan to buy a $20,000 car, you have $5,000 of equity in the vehicle, or 25 per cent. (The lender has the other 75 per cent.) Equity changes over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, you would still have $5,000 of equity in the vehicle, but your share would be 33 per cent.

What is a redraw facility?

A redraw facility allows you to re-borrow any funds you may have repaid ahead of schedule – although conditions and fees often apply. Not all car loans come with a redraw facility.

What is repayment frequency?

Repayment frequency is how regularly you have to make car loan repayments to your lender. The most common repayment frequency is monthly, but many lenders will also give you the option of making fortnightly or weekly repayments.

What is a balloon payment?

Some lenders will offer borrowers reduced monthly repayments in return for a one-off lump sum – or balloon payment – that the borrower has to pay at the end of the loan. Generally, the total repayments on a loan with a balloon structure will be higher than a loan without.

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.

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 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.

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

Can I get a discounted student car loan?

Being a student is tough enough, and while you might find the odd student discount on movies and technology, the same can’t be said about car loans, as you can’t really get a discounted student car loan.

Lenders make money on the interest and fees that they charge with loans, and the lowest interest and fees are given to the most reliable credit holders: people with excellent credit history.

As a student, you are unlikely to have enough on your credit report to warrant an excellent history. There are however, ways of getting a lower interest car loan if you can’t get an interest-free loan from the bank of mum and dad. One way of doing this may be through getting a guarantor car loan, which can get you a secured car loan by setting your parents up as guarantors.