Can You Refinance a Car Loan?

If you need a car but can’t afford to buy one outright, a car loan is your best friend. Car loans typically last from one to seven years, which leaves plenty of time for changes in the market to take place. If your current loan isn’t as competitive as it once was, you may be wondering ‘can you refinance a car loan?’

Refinancing is the act of replacing one loan with another, typically one with a lower interest rate and different term length. Refinancing a home loan is common, and people typically refinance to get a better interest rate, access their equity, consolidate debts or renovate. So can you take the same principle and apply it to car finance?

On top of providing home finance options in Australia, Time Home Loans is also a car loan broker. If you’re dissatisfied with your current deal and you’re looking around at what else the market has to offer, we can answer the query “can you refinance a car loan?”

 Can you refinance a car loan?

 Car loans come in four main varieties. Secured car loans use the vehicle you’re purchasing as collateral, and offer lower interest rates as a result. Unsecured car loans have higher interest rates but don’t require risking the vehicle. Fixed rate loans keep your repayments consistent throughout the term of the loan, while variable rate loans fluctuate according to market conditions.

Can you refinance a car loan? Yes. Refinancing a car loan is always on the table, but it comes with advantages and disadvantages.

Pros and cons of refinancing your car loan

 It’s important to weigh up both the pros and cons when deciding whether or not to refinance your car loan.

Pros:

A lower monthly repayment

If you’re going through a period of financial difficulty, refinancing your car loan can reduce an expensive monthly car payment, leaving you more money to budget with.

Less interest

If you can lower your current loan by 1% or more, you can also reduce a significant amount of the interest paid over the life of the loan.

A new lender to work with

If your current lender hasn’t met your expectations, refinancing offers you a chance for a fresh start with a new professional.

Tapping your car’s equity

If you need money, a cash-out auto-refinance loan allows you to borrow using your car’s equity. There are limits to this approach, so it’s best for financial emergencies or for paying off higher-rate debt.

Cons:

You may have to pay interest

If you refinance to a longer loan term, having additional months to pay also means additional months of interest. This can apply even if you have a reduced rate.

You might have to pay additional fees

Your current lender may have fees for ending a loan agreement early, while your refinance lender might charge application fees when you begin your new loan.

Loss of certain features

By switching to a new lender, you may lose current options such as being able to pay the loan early if you wish.

Reduced borrowing power

Due to variations in policies and lending criteria, you may find yourself unable to borrow as much as you could before.

 When should you refinance your car loan?

 You can refinance a car loan, but when should you? Here are some common scenarios in which you may want to consider refinancing your car loan. When in doubt, talk to a professional.

When your situation changes

If your income has increased, you’ve seen an improvement in your credit score or you want to add a co-lender, refinancing can help you find a more suitable deal with lower interest rates.

When you run into financial trouble

If your interest rates are too high for your current budget, refinancing can help you find a more affordable deal.

You want to vary your term loan

If you’re on a tight budget, you might want to refinance to a loan that allows for a longer repayment period. Likewise, if your financial situation has improved, you might want to pay off your loan earlier with a shorter term. Refinancing gives you a term that suits your current needs and situation.