Car Loan Refinance Guide…..
With interest rates dropping to record lows it’s not surprising that many people are looking at their finances and considering if they can find better deals. But what does refinancing your car loan actually involve and what are the pros and cons? Here’s our complete guide to Car Loan Refinancing:
What is Refinancing?
Simply put refinancing involves taking out a new loan to pay off the existing loan.
How does Refinancing work?
Refinancing works by replacing the loan that is currently attached to your car, whether you replace the loan with another loan from the same lender or more commonly with a loan from a different lender. Re-financing your car loan is similar to transferring your credit card balance to another card or swapping your home loan onto a better deal, you’re just moving the amount to another lender.
Your circumstances or the market conditions may have changed since you took your loan out and you may feel that there are better deals out there for you. The main reasons to consider refinancing your car loan include:
1. Lower Interest Rates – take advantage of a lower interest rate to help you save money on the amount of interest payable over the term of the car loan.
2. Lower Repayments – reduce your car loan repayments.
3. More Flexibility – gain additional features, such as the ability to make additional payments towards your car loan.
4. Longer Loan Term – extend the term of your car loan beyond the period that you initially took the loan out over.
5. Loan Security – change from an unsecured or secured car loan.
6. Type of Loan – change the type of car loan that you have to reflect your current circumstances. For example, you may have originally taken the loan out as a business loan when you were self-employed but you’re now employed and want a consumer loan or you may have taken out a novated lease but have changed jobs and your new employer doesn’t offer salary sacrifice arrangements.
7. Credit History – get a better, more flexible car loan once you have established an improved credit rating.
8. Variable Interest Rate – switch to a fixed rate to ensure that you have a fixed monthly car loan repayment and more effective budgeting.
9. Unhappy with Lender – transfer to a lender that provides you with better service.
Things to Consider
Fees – Exiting your current car loan early will usually mean that you incur some early termination fees from the lender. In addition, arranging a new car loan will normally involve some set up fees. You’ll need to understand how much these fees are and factor them into your calculations to help you determine whether refinancing is a good option for you.
Interest – If you plan to refinance your car loan over a longer period than is remaining on your current loan this may result in you paying more interest in total even if you switch to a loan with a lower interest rate.
Range of Lenders – not all banks and finance companies are prepared to refinance a loan from another lender. Some lenders will flatly refuse to refinance, whilst others will judge applications on a case by case basis.
1. Try and keep the new car loan term as close as possible to the remaining term on your original loan. This way you will avoid falling into the trap of paying additional interest charges.
2. Refinance to a car loan that allows you to pay additional payments. Paying extra towards your loan when you can will result in you paying your loan off more quickly and reducing the total amount of interest payable.
3. If you’re refinancing to reduce your car loan interest rate make sure that the rate difference is substantial. The benefit of refinancing for the sake of 1-2% on a typical car loan could easily be eaten up by the fees that you have to pay to exit the original loan and set up a new loan.
4. Use a Finance Broker. Access a wide range of Banks and Finance Companies through one point of contact and use the Broker’s experience of different lender’s requirements to find the best refinancing solution for you.
Find the Best Car Loan Refinance Deals
Using the tools and resources at LoanPlace.com.au and working with a Qualified Finance Broker can help you to find the very best Car Loan Refinance deals for your individual circumstances.
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