Car Loan Refinance
Are you looking to get a better deal on your current car loan? Compare competitive refinance offers with Savvy.
Fact checked
Car loan refinancing can be a highly useful tool for adjusting your car loan. Whether you’re looking to reduce your payments, cut down on interest, change your loan term or add new features to your agreement, it’s important to understand how the process works and whether it’s the right move for you. That’s where Savvy can help you out.
With over 40 trusted and industry-leading car financiers on our panel, our experienced consultants can help you navigate the refinancing process from application to settlement, which all takes place online. We can help you find your ideal lender and secure the best rate available for your profile, so get started with a free, no-obligation quote today!
What is car loan refinancing?
Car loan refinancing is the process of switching your current car loan to another, which can either be a different or updated product with the same lender or a fresh loan with a new lender. Essentially, this involves taking out a new car loan to pay out your old one and continuing your repayments on a different set of terms.
For this reason, refinancing may be treated as a new application. For instance, if you originally took out a $50,000, five-year car loan and are looking to refinance it after two years with $20,000 paid off, you’ll effectively be applying for a three-year, $30,000 loan.
Refinancing is a common way for borrowers to adjust their loan terms to be more favourable, such as accessing a lower interest rate or reducing their ongoing repayments to add more space in their budget. By applying through Savvy, you’ll be able to speak to one of our experienced consultants, who’ll talk you through the potential benefits and drawbacks of refinancing your loan.
Why should I refinance my car loan?
There are many reasons why someone might look to refinance their car loan and access a new deal. Some of the main reasons why you might look to do so include:
- To lock in a better interest rate: if the market has taken a turn towards lower interest rates or your financial position (such as your credit score) improves over the course of your car loan, you may be eligible for a lower interest rate. This can help you save over the remainder of your car loan.
- To reduce your fees: some lenders may offer lower fees than what you’re currently paying, so you may look to switch to move away from having to fork out in this area.
- To lengthen or shorten your loan term: because your circumstances may have changed since you took out your loan, some people may opt to change their term. Those who have more cash available may shorten the term to help them save on interest, while others may stretch their loan back out to reduce the cost of their repayments (which increases your overall loan cost).
- To remove or add a co-borrower or guarantor: if you signed up for your loan initially with another borrower on the contract or a guarantor, the only real way to remove them is to take out a new loan with fresh terms. On the flip side, adding either of these to your loan will also require a refinance.
- To add a residual payment: some lenders will give you the option to add a residual, or balloon, payment when taking out your loan. This is a lump sum to be paid at the conclusion of your agreement and adding one can reduce the cost of your ongoing repayments (though they increase the interest you pay overall).
- To access new features: you may simply wish to refinance your loan so you can gain access to new and improved features which aren’t included in your current deal. For instance, if your current car loan doesn’t come with free additional repayments, you may wish to switch to one which does.
How much can I save by refinancing my car loan?
The amount you can save by refinancing your car loan will depend on a range of factors, including the interest and fees, loan term, loan amount and balloon (if applicable). The following table shows how refinancing your loan to one with a lower rate can help you save:
| Interest rate | Repayments | Balance after two years | Interest after two years | Refinanced rate | New repayments | Total interest | Total saving |
|---|---|---|---|---|---|---|---|
|
9.50% p.a. |
$631 |
$19,669 |
$4,791 |
9.00% p.a. |
$626 |
$7,639 |
$166 |
|
9.50% p.a. |
$631 |
$19,669 |
$4,791 |
8.50% p.a. |
$621 |
$7,474 |
$331 |
|
9.50% p.a. |
$631 |
$19,669 |
$4,791 |
7.00% p.a. |
$608 |
$6,985 |
$819 |
Calculations based on a $30,000 car loan repaid monthly over five years.
Additionally, shortening your term can have a major impact on the cost of your loan. Here’s how it works:
| Loan term | Balance after two years | Interest after two years | Refinanced term | New repayments | Total interest | Total saving |
|---|---|---|---|---|---|---|
|
Five years |
$19,326 |
$3,753 |
N/A |
$602 |
$6,069 |
N/A |
|
Five years |
$19,326 |
$3,753 |
Four years |
$870 |
$5,299 |
$770 |
|
Five years |
$19,326 |
$3,753 |
Three years |
$1,677 |
$4,547 |
$1,522 |
Source: How to Pay Off Your Car Loan Faster – Savvy. Calculations based on a $30,000 car loan repaid monthly with a 7.50% p.a. interest rate.
However, it’s important to note that many lenders will charge break fees for ending your agreement early. This means that you could end up paying hundreds to exit your contract ahead of schedule and take up your new one, which could reduce or eliminate the benefit of refinancing in the first place. It’s important to check with your lender to see whether they charge early exit fees and how much they may cost you.
Can I refinance my car loan if I have bad credit?
You may be able to refinance a car loan with bad credit, but whether you can do so will depend on a range of variables, such as your credit score, repayment history and the lender you’re applying with. When applying for a refinance in this situation, you’ll need to show your lender the following:
- You’ve consistently made repayments on time and in full across your car loan term
- You’ve paid down or eliminated other bad debts
- You’ve maintained consistent recent employment and income, as well as a stable residential history
Applicants who can prove these will fit into the “correctable credit” category, which will make approval more likely. However, if your credit score has dropped since you took out your car loan, refinancing it could cost you more money in the long run both on break fees and increased interest.
Why refinance your car with Savvy?
Over 40 lending partners
Our vast panel of authorised lending partners provides you with more options when comparing and looking for the best rates.
Help from experienced consultants
A member of our friendly team of car finance experts will help you through the car loan application process.
More than a decade in the industry
With over ten years under our belts helping Australians find their ideal car loan, you can trust us when it comes to finding great deals.
The car loan refinancing process explained
Submit your online application to Savvy
Firstly, tell us about yourself and the car loan you’re after. This will include information about your personal financial circumstances, such as how much you’re earning and your current employment situation. You can also tell us about your car if you’ve already found it, as this will help shape the terms of the loan you’re approved for.
Supply any required documentation
Additionally, as part of the application process, we may require you to submit additional documents to help verify your employment and income. This can be done online via our web portal, where you’ll also be able to electronically sign other necessary documents such as your consent form.
Review your options with your Savvy consultant
Once we have all the information we need, we’ll get to work comparing offers based on your profile. Your consultant will be in touch with you after they’ve done this to talk through the car loan options best suited to you and your indicative interest rate. If you’re happy with the car loan your consultant has singled out, we’ll get to work on the application.
Have your application prepared, approved and settled
From there, your consultant will prepare your application on your behalf to satisfy your lender’s requirements. You can expect your application to be formally approved as soon as 24 hours after, after which you’ll be sent your loan contract to sign. Once you’ve signed everything, we’ll organise the settlement of your new loan.
Pay off your old car loan
After everything has been signed off on, your existing car loan can be paid off by your new loan. This can either be done by you or your lender directly (though this will depend on the lender you apply with). From there, you can begin paying off your car loan under your brand-new terms, with the Savvy refinancing process complete!
The pros and cons of refinancing your car loan
PROS
Save money on your car loan
By refinancing your car loan, you can gain access to more affordable rates and fees, as well as potentially take advantage of a shorter term or free additional payments, to save more than you would have otherwise.
Add greater flexibility
You can adjust the loan term to better suit your financial situation and goals, whether you're struggling to keep up with high monthly payments and want to spread them out over a longer period or you're after a shorter term with less interest overall.
Switch to a new lender
If you're dissatisfied with your current lender's customer service, online features or interest rates, refinancing allows you to shop around and find a lender that better meets your needs.
CONS
Fees may outweigh the benefits
It’s important to be mindful of whether there are any early exit fees with your current car loan or application fees with the new one, which may negate the benefits of refinancing in the first place.
Potential for higher interest
While refinancing your car loan can potentially lower your interest rate, there's also a risk that you may end up paying more interest if your credit score has declined, market interest rates have risen or as a result of a lengthened term.
Risk of negative equity
Negative equity occurs if the car has depreciated faster than you've paid down the loan balance. If you refinance a car with negative equity, your new lender may not be willing to offer the full balance of your outstanding debt, leaving you to cover the shortfall.
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Common car loan refinancing questions
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