The guide to refinancing your car loan

Purchasing a new car for their business

 

 Estimated read time: 5 Minutes

 

Refinancing your car loan could unlock potential lower repayments. But what is car refinancing, and how do you get started?

It feels pretty good paying off a good chunk of your car loan. But even if you’ve put a big dent (pardon the expression) in your car loan, refinancing could still help you save on your regular repayments.

 

What does refinancing a car loan mean? 

Refinancing involves changing your lender or your loan agreement with your current lender. It could mean that you’re able to enjoy a lower interest rate.

If the interest rate on your current car loan is fixed, the interest rate and repayments will stay the same throughout the term of the loan. So if your circumstances change or interest rates drop, refinancing might let you enjoy lower interest rates.

 

How does car loan refinancing work? 

If you refinance your current loan with a new lender, the money you borrow from your new lender will pay off your current loan. You then make regular repayments to your new lender according to the terms of your loan contract.

 

Why should I refinance my car loan?

Whether you’re looking for a better deal, want more control over your car loan or your circumstances have changed, refinancing may help you reach your goals. 

 

What are the potential benefits and drawbacks of refinancing your car loan?

The possible benefits of refinancing a car loan include:

locking in a lower interest rate
Locking in a lower interest rate than your current loan – potentially reducing your repayments
extending your loan term
Extending your loan term to lower your repayments and give you more time to pay off your loan
adding or removing a joint borrower
Adding or removing a joint borrower because your circumstances have changed
dealing with a new lender
Dealing with a new lender – if your current one hasn’t met your expectations

 

The potential downsides of refinancing include:

paying more interest
Paying more interest over the long term if you extend the loan term to reduce monthly repayments
potential entry and exit fees
Costly surprises such as potential entry and exit fees when you refinance
Not having access to the right features
Not having access to certain features with your new lender, such as the ability to repay the loan early
reduced borrowing power
Reduced borrowing power. You may not be able to borrow as much as you did originally due to changes in lending criteria/credit policies.

When should I consider refinancing my car loan?

You may want to consider refinancing your car loan:

When your circumstances change

When your circumstances change

If your credit score has improved, you have changed careers, want to add or remove a co-borrower to the loan or your situation has changed in any other ways, refinancing could be an option. Your changed circumstances may help you secure a lower interest rate with another lender, which could reduce your repayments. 
when you want to reduce your repayments

When you want to reduce your repayments

If your regular repayments are too high, refinancing your car loan could be an option to lower yours. This might include getting a lower interest rate, extending the life of your loan or adding a balloon payment.
when you’re looking for a better deal

When you want to find another deal

If you find alternative finance for your vehicle, it might be a good time to consider refinancing. Be sure to check the terms and conditions of the loan and the features of the lender before you sign on the dotted line.

Make sure you speak to your current lender first. Depending on your circumstances, your current lender may be able to assist with your requirements.

 

How do I refinance my car loan?

There are 4 steps to the process:

1. Find out your pay-out figure
It’s a good idea to contact your existing lender and find out how much you have left to pay off on your loan. This will help with your application. Also inquire about any early exit fees.
2. Assess your options

Compare lenders, their loan offerings, establishment and ongoing fees and make sure you understand the terms and conditions of the loan. Once you find the loan option that suits your needs, you can complete an application with the lender.

Explore your Pepper Money car loan options and calculate your estimated repayments here.

3. Submit relevant documents and information to support your application
To assist with the assessment of your loan application, you will need details about your current loan, your car and your personal circumstances.
4. Pay off your current loan
Your new lender may do this on your behalf once your new loan is approved – or you might need to organise it. Once your existing loan has been paid off, make sure the account is closed, and start making repayments on your new loan.

Is refinancing a car loan bad for my credit? 

Refinancing your car loan may reduce your credit score in the short term as your new lender will make a credit enquiry on your credit report. But your credit score should improve when you make your loan repayments on time.

That being said, applying for a number of car loans within a short period of time may affect your credit score.

While you need to consider your options carefully, refinancing may be an option for you to reduce your monthly repayments and help your short-term cash flow.

Thinking about refinancing your car loan? Explore our options now. 

Contributor | Andrew Gamble, Head of Sales - Asset Finance

Andrew brings more than 20 years of experience in the finance industry. His strategic vision, leadership and his customer centric approach has contributed to the significant growth of Pepper Money's Asset Finance business. Read more.

Information provided is factual information only and is not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser.

All applications for credit are subject to credit assessment, eligibility criteria and lending limits. Terms, conditions, fees and charges apply. 

The results of the borrowing power calculator are based on information you have provided and is to be used as a guide only. The output of the calculator is subject to the assumptions provided in the calculator (see 'about this calculator') and are subject to change. It does not constitute a quote, pre-qualification, approval for credit or an offer for credit and you should not enter commitments based on it. The interest rates do not reflect true interest rates and the formula used for the purpose of calculating estimated borrowing power is based on the assumption that interest rates remain constant for the chosen loan term. Your borrowing power amount will be different if a full application is submitted and we complete responsible lending assessment. The results in the calculator do not take into account loan setup or establishment fees nor government, statutory or lenders fees, which may be applicable from time to time. Calculator by Widgetworks.

Pepper Money Personal Loans is a brand of Pepper Money Limited. Credit is provided by Now Finance Group Pty Ltd, Australian Credit Licence Number 425142 as agent for NF Finco 2 Pty Limited ACN 164 213 030. Personal information for Pepper Money Personal Loans is collected, used and disclosed in accordance with Pepper’s Privacy Policy & the credit provider’s Privacy Policy.

Pepper Money Limited ABN 55 094 317 665; AFSL and Australian Credit Licence 286655 (“Pepper”). All rights reserved. Pepper is the servicer of home loans provided by Pepper Finance Corporation Limited ABN 51 094 317 647. Pepper Asset Finance Pty Limited ACN 165 183 317 Australian Credit Licence 458899 is the credit provider for asset finance loans.

Pepper and the Pepper Money logo are registered trademarks of Pepper Group Assets (Australia) Pty Limited and are used under licence.

Get in touch with a Lending Specialist

Tell us about your situation. The more we learn, the better we can help.