Thinking about refinancing your car loan? Here’s how it works and some factors to consider before applying.
Whether you’re wondering how it actually works or whether refinancing is an option worth considering, this guide takes you through some of the ins and outs of refinancing a car loan.
What Does Refinancing A Car Loan Mean?
So, what does it mean to refinance your car loan?
Refinancing your vehicle loan involves replacing your existing loan with a new loan, subject to credit eligibility criteria and approval.
The new loan may have a different interest rate, loan term or repayment structure. Depending on the interest rate, fees, charges and loan term, refinancing may result in different repayment amounts or loan features.
How Does Car Loan Refinancing Work?
When you refinance your car loan, the new lender provides funds to pay out your existing car loan. You then make repayments under the terms of your new loan agreement.
Before applying, it’s worth reviewing your current loan, including the interest rate, repayment amount, remaining balance and any fees that may apply if you pay the loan out early.
You can then compare available loan products by considering factors such as interest rates, fees, loan terms and product features.
If you decide to apply, the lender will assess your application, including your credit history, vehicle details and current financial circumstances. If approved, you’ll repay the new loan in accordance with your loan agreement.
Depending on the approved loan structure, refinancing may result in different repayment amounts or a different loan term.
What are the pros and cons of refinancing your car loan?
Some potential outcomes of refinancing include:
- Different Interest Rate: Depending on your circumstances and the approved loan, you may qualify for a different interest rate than your current loan. This may affect your repayment amounts or the total cost of borrowing.
- Different Repayment Amounts: Changing the loan term may increase or decrease your regular repayments, depending on the approved loan structure. Some borrowers may find this assists with budgeting.
- Changed Financial Circumstances: If your financial circumstances or credit history have changed since you first obtained your loan, you may be eligible for different loan features or terms.
- Flexible Loan Terms: Refinancing may allow you to choose a different loan term, subject to the lender’s lending criteria.
- Joint Borrowers: Depending on the lender’s requirements, refinancing may provide an opportunity to add or remove a joint borrower.
Every financial move has its ups and downs so here are a few considerations of refinancing:
- Longer Loan Term: Extending your loan term may reduce regular repayments but could increase the total interest payable over the life of the loan.
- Fees and Charges: Some lenders may charge fees when refinancing or paying out an existing loan. It’s important to consider these costs before applying.
- Credit Enquiry: Applying for a new loan generally involves a credit enquiry, which may temporarily affect your credit report.
- Eligibility Requirements: Approval is subject to the lender’s credit eligibility criteria and lending policies, so not every applicant will qualify for refinancing.
When should I consider refinancing my car loan?
You may wish to compare your current loan with other available loan products if:
- Your financial circumstances have changed. Changes to your income, expenses or credit history may affect the loan products you may be eligible to apply for.
- You’re comparing available loan products. Different lenders may offer different interest rates, loan terms, fees and product features.
- You’d like to change your repayment structure. Depending on the approved loan, refinancing may allow you to choose a different loan term or repayment arrangement.
- You’re reviewing the total cost of your current loan. Comparing the interest rate, fees, charges and remaining loan term can help you understand the overall cost of refinancing before making a decision.
If you’d like to learn more about refinancing, our team can provide information about Rapid Loans’ vehicle loan products, eligibility criteria and application process. You can also apply online or call us on 1300 727 431.
Disclaimer: This article provides general information only and is not financial advice. It does not take into account your personal objectives, financial situation, or needs. You should consider whether the information is appropriate for your circumstances and seek independent professional advice if needed. All applications are subject to Rapid Loans’ credit eligibility criteria. Approval is not guaranteed. Fees, charges, terms and conditions apply. Rapid Loans Pty Ltd holds Australian Credit Licence Number 388847.