Refinancing car loans
Before you consider refinancing your car, you should be clear what you want to get out of the process. When you take out an initial car loan, there will normally be certain conditions in place from your lender. You'll be paying the loan back at an agreed interest rate, variable or fixed depending on the circumstances, but there may be penalties if you finish the loan early by refinancing. Most people who are considering refinancing are looking at maximising their savings by getting the benefits of an interest rate lower than their original loan. You should research online and make comparisons between the refinancing options you might be offered to get the best from any refinancing car loans.
How do refinancing car loans work?
Refinancing a car loan simply means that you switch to a different lender. You could be offered a lower interest rate and lower, or even no fees, as well as easier payment options that could mean paying your loan off sooner. If you get your car refinancing right, you could be in line to save many hundreds of dollars, or thousands depending on how much you have previously borrowed. It’s not a difficult process and it’s one you can undertake yourself, provided you do the leg work to assess as many options as you can, comparing them against each other and your current loan. If you'd prefer to use a professional, especially if your time is at a premium, a finance broker could help pave the way.
Why do people use refinancing car loans?
The main reason for using these loans is to save money, and it could be a significant amount with the right deal. There are three major benefits:
- Reduced repayments: You may be offered better interest rates and fees by lenders when you're exploring your refinancing options.
- Managing a balloon payment: If you have finance with a dealer, you'll probably have a balloon payment that needs to be covered, which is a large sum at the end of the loan term that will have meant you were probably paying lower instalments than you otherwise would have. Refinancing may allow you to pay back the balloon payment over a longer period if you don't have the lump sum immediately available.
- Accessing a better lender: Lenders vary in what they will offer you and are always looking for new business. You could find discounts offered on other products if you take out a car loan, and enjoy better customer service or other add-ons that your former lender may not have made available.
What are the main features?
Look for lower interest rates and any other additional sweeteners that would be useful to your circumstances. It's a personal loan, so check the terms relating to repayment, the loan term and any hidden charges or fees.
What are the pros and cons of refinancing car loans?
You have the potential to save a lot of money by refinancing if you get the right deal, but compare the deal you're currently on with a new one to make sure you really are saving money.