Refinancing – Divorcing your car loan
Is the honeymoon over? Has reality set in and you have come to the realisation that your lender isn’t the right fit for you?
These are the questions you may be asking yourself if you signed up for a high interest loan through a car dealer or bank and your monthly repayments are nibbling away at your wallet.
Now that the bitterness has set in, are you looking to split ways?
In this case, refinancing might be a viable option.
As with any major financial decision, you should always take time to consider all of your options, factor in the optional cost of seeking financial advice from a professional and not jump into any rash decisions that may put you in a worse off financial position than you currently are in.
Essentially, refinancing your car loan will mean that you take out a new loan. This new loan will then pay off your existing loan in full and you will begin incurring repayments on your new loan. If executed correctly, refinancing should place you into a more favourable loan that is gentler to your wallet.
There are essentially 3 outcomes that you may be seeking when considering refinancing;
- Reducing your loan repayments by accessing a better rate and lowering the interest payable.
- Lengthening your loan term to reduce repayments. Our car loan calculator can give you an idea of the difference extending your loan term can make.
- Finding a loan with more flexibility, for example, a loan that allows you to make extra repayments without incurring penalties.
Some considerations when refinancing a car loan;
- Does the saving created by lowering the interest rate outweigh the costs of taking out a new loan? These costs may include termination fees of your old loan and set up and administration fees of your new loan.
- Loan conditions – Since taking out your original loan, your vehicle will have aged. Some lenders have limits on the age that a vehicle can be for financing. Other terms and conditions may come back to bite, so read the fine print carefully.
- Credit checks – Remember that with all loan applications, your credit will be checked again and your rate and repayment will be matched to your credit score.
Life can throw us a curve ball every now and then and our financial position can change in an instant, sometimes for the better and sometimes for the worse. One thing that stays in our control is the ability to compare and save. Whether you are well off or battling to keep that little extra to yourself and away from the banks pocket, refinancing your car loan can be very rewarding if done correctly, and opportunities to save yourself in the long run should never be overlooked.
Having said that, remember to take the time to research and make sure the savings that refinancing your car loan can bring are worthwhile. If you have done all of your calculations and are ready to take the plunge, why not save even more by talking with a friendly finance consultant from 360 Finance.