Car purchases are often conducted very quickly, so some people find themselves choosing a car loan because of how quick it is to process, rather than how much it costs them in the long term. Because of this, many may find themselves paying too much, but how can a car loan refinance actually work in your favour?
A car loan refinance is similar to a home loan refinance, where your active car loan can simply be replaced by a new car loan on better terms for your situation. Typically, the new lender will simply pay out your existing lender on your behalf, much like a home loan refinance.
You could even consider consolidating a car loan into your home loan, should you have enough equity in your home to do so, and with a loan structure that is beneficial to you. This could be achieved by way of a home loan top up with your current lender (or even a new one).
The key is to establish whether or not the benefit of refinancing is actually real. You need to factor in the current loan balance, loan term, interest rate, interest payable, early repayment penalties, and any fees associated with your current car loan. Your new car loan (or home loan) repayments plus loan establishment costs should result in a positive net difference that outweighs the cumulative costs of exiting your current loan.
Benefits of refinancing your car loan may include:
- lower interest payable, resulting in medium to long term net savings
- better cash flow with lower repayments
- increased borrowing capacity for other needs such as a home purchase
- lower fees and lower exit costs
It’s important to consider that by extending a loan term out further than what your currently on, you may increase the interest payable in the longer term. We can assist with the comparison of your options and with identifying if a refinance is actually suitable based on your requirements and objectives.
If you need help with assessing your car loan options, call us today on 8300 8300 or simply get in contact with us here.
*The information provided in this article is general in nature and does not take into account your personal circumstances. Since everyone’s personal situation is different, this article should not be taken as advice. We recommend you seek individual advice with a mortgage broker.
