5 Tips For Refinancing An Auto Loan
1. Weigh up the costs and benefits of refinancing a car loan
While refinancing a car loan can be a great option for many people, make sure that it suits your personal circumstances before committing to anything. You’ll want to be confident that the future savings from your new loan aren’t outweighed by the costs of refinancing, and there are a number of things you’ll want to keep in mind.
How much time is left on your loan?
For example, if you only have one year left on your original auto loan, the costs of refinancing, like exit fees and entry fees, might not be worth the savings from a reduced interest rate. If you’ve still got a few years left though, it’s likely that even if you have to pay fees to your current lender to be able to refinance, these will be more than offset by the savings you’ll make by getting a new loan with a better interest rate.
What are the costs involved?
Some of the costs of refinancing might include a break fee (paid to your previous lender to exit your current loan), entry fee (for your new loan) or an annual fee (paid to your new lender).
Consider your current financial situation
It’s also important to think about your current financial situation. If you’re not in a very strong financial position, this might impact your ability to get approval on an auto loan. It could be worth waiting until you’re feeling more financially stable before looking at refinancing. The good news is that the Driva platform will take the guess-work out of the process and automatically let you know whether or not you’ll get approved for a loan, without impacting your credit file and ability to get credit in the future.
Secured or unsecured?
You’ll also need to take into account whether your current loan is secured against your vehicle or not. If it is secured, this might make the refinancing process more complicated, because your new lender may not be able to accept the vehicle as security if it is over a certain age or has had a significant drop in value. If this is the case, you may be able to refinance your car with an unsecured loan instead (though this might have an impact on your interest rate).
Learn more: Secured vs Unsecured Car Loan - A Complete Overview
What is the balance of your loan?
Finally, it’s important to make sure that the balance of your loan is lower than the value of your vehicle, so you can have the best chance of refinancing. Because cars are a depreciating asset, the current value of your car is probably going to be lower than what you initially paid for it. If the balance of your loan is higher than the value of your car, you’ll probably find it harder to secure refinance, as lenders will see you as a ‘higher risk’ customer. This in turn makes it harder to switch to a better deal.
2. Consider all your loan options
There are a seemingly endless number of car lenders out there, and trying to navigate the market (for a second time!) to refinance your car loan can be a stressful and confusing process. That’s where Driva comes in. When you use our smart online car refinancing platform, we’re able to give you personalised rates from our panel of over 30 lenders in just minutes (without affecting your credit score!). The only information we’ll need to get started are a bit about you, your car and your existing auto loan.
Driva takes the hard work out of the refinancing process by scouring the market for the best rates, specific to you and your personal circumstances.
Once you’ve decided on your perfect loan, the only documents you’ll need to have on you in order to progress your application are your drivers license, two of your most recent payslips and the ‘pay-off’ amount from your previous loan. We’ll also need a copy of your bank statement, but you can retrieve this digitally through bankstatements.com.au.
Before we share your application with your chosen lender, we’ll make sure you’re likely to be approved - this prevents disappointment and protects your credit score. Once your application has been submitted, the approval process generally takes between 2 hours and 2 days, but this varies between lenders. After you’ve been approved, your new lender will pay off your loan and transfer the funds directly to your previous lender, so you can start making your monthly payments to your new lender (and enjoy your savings!).
If you’re still struggling to decide which lender to go with, feel free to get in touch with our friendly team and have a chat. Give us a call on 1300 755 494 or email us hello@driva.com.au.
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3. Make sure the loan has all the features you want
Before you lock in your preferred refinance lender, it’s important to ensure the features of your new loan tick ALL the boxes. It can be helpful to think about what you don’t like about your current loan and make a list of all of the features that you’re looking for in your new car loan. Some of the important features to you might include:
Lower comparison rate
Getting a lower interest rate is one of the main reasons why many people choose to refinance their car. If the comparison rate (which includes all fees and charges) is not lower than the comparison rate on your lower loan, this generally means you’re going to be paying more interest. So this is critical to check.
Extra repayments
With some loans, you have the ability to make extra repayments on your loan without incurring any additional costs. Not every lender offers this, so make sure you check the terms and conditions of the loan if this is something that’s important to you.
Low ongoing costs and fees
Another important consideration when deciding between refinance options is any ongoing costs that might occur. For example, some lenders might have a high application fee, or impose a prepayment penalty, so you’ll want to make sure you’re across all the fees before deciding on a loan. When you access your personalised quotes on the Driva dashboard, we’ll clearly lay out all the costs and charges associated with each loan, so you can be confident that there are no unpleasant surprises down the line.
Overall lower loan cost
If your main priority is saving money overall, you might want to keep your monthly repayments the same, but switch to a loan that has a lower interest rate. This will mean you’re paying back the loan faster, with less interest, saving you money over the life of the loan.
Longer loan term
If, however, you’re more concerned about your short-term cash flow than the overall cost of the loan, you might want to extend your loan term in order to lower your monthly repayments. Perhaps some unexpected bills, or a change in employment status, might mean that your financial situation has suddenly changed.
Extending your loan term by a few months or even a year can give you some breathing room if you’re worried about missing payments and affecting your credit score. If you choose to extend your loan term, be mindful of the impact this will have on your total interest payments for the duration of the loan.
Additional features
In addition to these main points, consider any other features that were missing from your previous loan that you’d like to be included in your new one. For example, you might like the option to make a balloon payment towards the end of your loan, the option to redraw money if you need to or the ability to remove a guarantor from your loan.
4. Factor in fees and transfer cost
When you’re considering refinancing your car loan, it’s important to make sure that your new loan will cost less than your existing loan. If you’re going to end up spending more money, refinancing may not be the best move for you!
You’ll want to consider any additional costs and charges that your previous or new lender may impose. For example, your old lender might charge you an early exit fee for leaving your loan early, or your new lender might have an entry fee that you need to pay. At Driva, we pride ourselves on being 100% transparent with our customers, so we’ll be sure to let you know up front of any costs that you’re going to need to pay along the way.
When you’re considering your loan options, make sure you pay attention to the comparison rate, as this incorporates most fees (excluding stamp duty), so it is the most accurate representation of how much you’ll spend across the life of the loan.
5. Timing, timing, timing!
Our last tip to ensure that you have a successful experience securing refinance on your auto loan, is to make sure you refinance at the right time. If your credit score has improved since you first took out your loan, this will show your potential new lender that you’ve become a less risky borrower - which means that you might qualify for a lower interest rate! If your credit score has dropped, however, you might want to consider waiting to refinance your car until your credit score has improved, as you might find that the interest rates available to you are actually higher than your current rate.
If you’re looking to check your credit score or have a look at your detailed credit history, you can do so for free with our friends at Equifax. If you’ve got any concerns with your credit file, you can work directly with Equifax to have it rectified. You can also reach out to us directly to chat about how you can improve your credit rating, and discuss the car loan rates you’re eligible for. Our friendly and knowledgeable team are always happy to help - give us a call on 1300 755 494 or email us at hello@driva.com.au.
You’ll also want to consider how much time you have left on your original loan - if you’ve only got a year left, the exit and entry fees might not be worth the savings on a lower interest rate.
Finally, make sure that you take the time to find the perfect loan that suits your personal and financial circumstances. Taking the extra time to make sure that the loan meets all your requirements, and that the total cost of your new loan is something you’re happy with, is critical to ensuring that you’re completely happy with your new refinanced loan. When you’ve found a new loan that you’re happy with, compare it with your existing loan to make sure that you’re getting a better deal, and that the new loan has all the features you’re looking for.
Shopping around for a great refinance deal can be exhausting, not to mention time consuming. That’s where Driva’s smart car refinance platform comes in handy. Driva gives you personalised rates from our panel of over 30 lenders, so you’ll be able to save time searching for the best deal, because you’ll have the confidence that you’re getting the best possible rate. Driva is also an entirely online car finance platform, which means that you can browse the best rates, and apply for car refinance, from the comfort of your own home!
Summing up
Refinancing is a great tool for consumers who are looking to pay less interest on their current car loan or improve their personal finances by managing cash flow. No matter what you’re looking for in your next loan, Driva can help! Once you’ve decided that you want to refinance your car loan, simply use Driva’s smart refinancing platform to find your best eligible rates from across our panel of over 30 lenders. Just click ‘I want to refinance my vehicle’ and we’ll let you know how much you could save!
If you have any queries please get in touch with our team of car finance experts. Give us a call on 1300 755 494 or email us at hello@driva.com.au.
