Thinking of switching your car loan?

If you're deciding whether or not to refinance your car loan, following is some helpful information and things to consider.

What does refinancing your car loan involve?

Refinancing your car loan involves taking out a new loan for your car to pay out your existing loan. It's not buying a new car; it's simply replacing the finance attached to it.

Why refinance my car loan?

Some of the reasons why you might look to refinance your car loan include the following:
 
  • You want a loan with a lower interest rate to help you save money on interest, and lower your loan repayments.
  • You want to lower your loan repayments by increasing your loan term
  • You want a loan with greater flexibility such as the ability to make extra repayments and access available redraw.
 

What fees are there?

The fees you need to be aware of when refinancing your car loan include switching fees such as early loan repayment fees on your existing loan and application fees on the new loan. Different lenders charge different fees so you should check with individual financial institutions as to what fees and charges apply. Note that not all car loans have early repayment penalties.

Things to consider when looking for a car loan

You of course need to assess what your needs are to determine which loan is right for you. Following are some things for you to take in to consideration: 

 

Finding a low interest rate to save money

If the reason you are refinancing is because you are looking to save money on interest, then look for a loan with a low interest rate. You can even secure lower interest rates depending on the age and green star rating of your car. You should also take in to account loan account keeping fees. While small, these fees are usually compounded on to the loan so end up costing you more than what you think over the life of the loan.

 

When do you expect to have the loan paid off?

If you are trying to pay off your debt as quickly as possible, you will need to look for a loan not only with a low rate, but one that enables you to make unlimited additional repayments at no extra cost.

 

Are flexible features what's important to you?

If the features of your loan are important to you because you want flexibility, look for loans that allow you to access redraw in case you need it. Whether you pay your loan off quickly or according to the minimum repayments, you may want the security of knowing you won't be penalised either way. Loans that offer no penalties for making extra repayments will give you this peace of mind.

 

Secured loans vs unsecured loans

Secured car loans usually offer a lower interest rate than unsecured car loans. If your car is less than 3 years old, you could consider switching from an unsecured loan to a secured loan to enjoy some further savings. Many loans for newer cars also come with fixed interest options so you can enjoy the peace of mind of having the same low rate for the life of the loan, without your regular repayments changing.

 

How long do you plan on keeping your car before you sell it?

If you're looking for a loan with a balloon/residual payment at the end in order to lower your regular repayments you need to factor in how long you plan on keeping the car and whether or not you will have the money to pay the residual when it falls due. 
 
If you plan on selling the car before the residual is due, consider what the car's market value will be and whether or not it is likely that you will need to pay out any differences in order to sell it.
 
It's also important to understand how your car loan is structured. Some car dealerships offer low interest rates on new cars, however the interest is structured like a home loan where you pay back more interest first before paying off the principle. These are designed for people who plan on keeping their car longer than the loan term. If you planned on selling the car after year one or two, you may find that you haven't paid much off the principle, only the interest. Should you decide to sell the car, this could mean needing to pay the difference between what you owe and the market value at the time of the sale which could be significant. As you repay more of the interest early in the loan, it wouldn't make sense to refinance your loan later on as you've already paid for a large chunk of the interest.

 

 

Is it worth it?

Once you have assessed the reasons why you'd like to refinance your car loan, you should weigh up all the switching costs and how they impact on the benefits you expect to realise. For example, if you're refinancing to save money on interest, you could find that the switching costs erode a lot of the savings you expected to make. This however isn't always the case. The savings you can expect to make really depend on the cost and features of the loan you have and the loan you want to switch to.

 

What if I have a secured car loan?

The loan you have on your car is likely to be either a secured or unsecured loan. A secured car loan means that the vehicle is taken as security for the loan, so that in the event you are unable to meet your repayment requirements, the financial institution will repossess the car.
 
An unsecured loan means that the vehicle is not taken as security over the loan. Unlike a secured car loan, a PPSR check on the car will not show that there is finance owing on the vehicle.

 

 

 

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We even offer a free car buying service for Members to help you find the best possible deal when buying a car. Find out more or fill out the enquiry form.

Thinking of switching your car loan?

If you're deciding whether or not to refinance your car loan, following is some helpful information and things to consider.

What does refinancing your car loan involve?

Refinancing your car loan involves taking out a new loan for your car to pay out your existing loan. It's not buying a new car; it's simply replacing the finance attached to it.

Why refinance my car loan?

Some of the reasons why you might look to refinance your car loan include the following:
 
  • You want a loan with a lower interest rate to help you save money on interest, and lower your loan repayments.
  • You want to lower your loan repayments by increasing your loan term
  • You want a loan with greater flexibility such as the ability to make extra repayments and access available redraw.
 

What fees are there?

The fees you need to be aware of when refinancing your car loan include switching fees such as early loan repayment fees on your existing loan and application fees on the new loan. Different lenders charge different fees so you should check with individual financial institutions as to what fees and charges apply. Note that not all car loans have early repayment penalties.

Things to consider when looking for a car loan

You of course need to assess what your needs are to determine which loan is right for you. Following are some things for you to take in to consideration: 

 

Finding a low interest rate to save money

If the reason you are refinancing is because you are looking to save money on interest, then look for a loan with a low interest rate. You can even secure lower interest rates depending on the age and green star rating of your car. You should also take in to account loan account keeping fees. While small, these fees are usually compounded on to the loan so end up costing you more than what you think over the life of the loan.

 

When do you expect to have the loan paid off?

If you are trying to pay off your debt as quickly as possible, you will need to look for a loan not only with a low rate, but one that enables you to make unlimited additional repayments at no extra cost.

 

Are flexible features what's important to you?

If the features of your loan are important to you because you want flexibility, look for loans that allow you to access redraw in case you need it. Whether you pay your loan off quickly or according to the minimum repayments, you may want the security of knowing you won't be penalised either way. Loans that offer no penalties for making extra repayments will give you this peace of mind.

 

Secured loans vs unsecured loans

Secured car loans usually offer a lower interest rate than unsecured car loans. If your car is less than 3 years old, you could consider switching from an unsecured loan to a secured loan to enjoy some further savings. Many loans for newer cars also come with fixed interest options so you can enjoy the peace of mind of having the same low rate for the life of the loan, without your regular repayments changing.

 

How long do you plan on keeping your car before you sell it?

If you're looking for a loan with a balloon/residual payment at the end in order to lower your regular repayments you need to factor in how long you plan on keeping the car and whether or not you will have the money to pay the residual when it falls due. 
 
If you plan on selling the car before the residual is due, consider what the car's market value will be and whether or not it is likely that you will need to pay out any differences in order to sell it.
 
It's also important to understand how your car loan is structured. Some car dealerships offer low interest rates on new cars, however the interest is structured like a home loan where you pay back more interest first before paying off the principle. These are designed for people who plan on keeping their car longer than the loan term. If you planned on selling the car after year one or two, you may find that you haven't paid much off the principle, only the interest. Should you decide to sell the car, this could mean needing to pay the difference between what you owe and the market value at the time of the sale which could be significant. As you repay more of the interest early in the loan, it wouldn't make sense to refinance your loan later on as you've already paid for a large chunk of the interest.

 

 

Is it worth it?

Once you have assessed the reasons why you'd like to refinance your car loan, you should weigh up all the switching costs and how they impact on the benefits you expect to realise. For example, if you're refinancing to save money on interest, you could find that the switching costs erode a lot of the savings you expected to make. This however isn't always the case. The savings you can expect to make really depend on the cost and features of the loan you have and the loan you want to switch to.

 

What if I have a secured car loan?

The loan you have on your car is likely to be either a secured or unsecured loan. A secured car loan means that the vehicle is taken as security for the loan, so that in the event you are unable to meet your repayment requirements, the financial institution will repossess the car.
 
An unsecured loan means that the vehicle is not taken as security over the loan. Unlike a secured car loan, a PPSR check on the car will not show that there is finance owing on the vehicle.

 

 

 

Auto search

We even offer a free car buying service for Members to help you find the best possible deal when buying a car. Find out more or fill out the enquiry form.