6 Benefits Of Refinancing A Car Loan
If you’re not happy with your current car loan, refinancing could be a great option for you. Not only can you save money on your monthly repayments, but there are also many additional benefits that come with refinancing your car loan. Here are some pros of refinancing:
1. Lower your total interest
Car loans are fixed rate products, which means that the price you pay each month remains the same. This means that the only way you can change the interest rate on your loan is by refinancing.
One of the biggest advantages of refinancing is that it is a great opportunity to secure a loan with a lower interest rate, which in turn will lower your monthly repayments. Perhaps when you obtained your existing loan you didn’t have time to fully consider your options and find the lowest rate, or maybe your lender wasn’t completely transparent about the costs you’d have to pay over the life of the loan, and you found yourself paying more per month than you originally thought you would.
Another great reason to consider refinance is to take advantage of Australia’s current low interest rates. It might be the case that the rates now are more competitive than when you secured your original loan a few years ago, so it’s worth checking out if there are better options available. You can do so in just minutes by using Driva’s smart refinancing platform to view personalised rates.
2. Increase your loan term to manage cash flow
Another benefit of refinancing your auto loan is that it can give you the opportunity to extend your loan term. This means that your monthly repayments will be reduced, so in the long-term you might end up paying slightly more than you would have otherwise. However, this could be a good option for you to help manage your monthly repayments if you’re more concerned about your ability to repay in the short term and are looking to improve your cash flow.
3. Save on fees
If your existing lender is charging you excessive fees, refinancing could be a great way to find a lender that doesn’t impose unreasonable fees. Before refinancing, make sure you weigh up any additional costs that might apply, like change fees or closing costs, to ensure that refinancing is the most affordable option.
With Driva’s smart refinance platform, you’ll be able to clearly see exactly what the fees are for each lender so you can be assured that there are no unwelcome surprises along the way!
4. Make the most of your improved credit score
If you’ve been making repayments on your loan on time and in full, you’re likely to have improved your credit rating over the course of your loan. This means that, if you were to refinance, lenders would view you as being a less risky borrower, giving you the opportunity to access lower interest rates. If you’re interested in finding out why your credit rating is the way it is, you can access your credit history for free directly through Equifax.
When you apply to refinance your loan with Driva, we’ll perform a ‘soft credit check’, which means that we’re able to access the score lenders use to price your loan without recording an enquiry on your file or impacting your score in any way. You can then see what rates you’re eligible for based on your new and improved credit score - obligation free.
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5. Pay off your loan quicker
Perhaps your financial situation has changed since you first took out your car loan, and you’re now in a position where you’re able to increase your monthly payment amount. If this is the case, refinancing gives you the ability to secure a new loan with larger monthly payments, so you can reduce the length of your loan, and save money by paying interest for less time.
Make sure you consider how much longer you have left on your existing loan before deciding to refinance. If you’ve only got one year left one your loan, the savings from refinancing might not be worth the entry fees and closing costs that may apply.
6. More flexible loan conditions
Finally, you might decide to refinance your loan so that you can make the most of a different lender’s more flexible loan terms and conditions. For example, you might want the option to make extra repayments without any fees, or add a balloon payment to the end of your loan. Alternatively, you might want to go with a lender that offers fortnightly payments instead of monthly payments.
Additionally, you might want to change the type of loan that you have. Like with personal loans, vehicle loans can be either secured or unsecured, meaning either the loan is secured against your vehicle, normally resulting in a lower interest rate, or it is not secured. Typically, secured loans are more suitable for newer vehicles and unsecured are used for older vehicles.
Potential Cons Of Refinancing A Car Loan
Whilst there are many benefits of refinancing your car loan outlined above, be wary as there are some potential cons of refinancing. Like with any big decision, it's important to do research thoroughly and talk to an expert for advice on if it’s suited to your personal financial situation.
More Interest In Some Cases
If you refinance your car loan and extend the repayment period, it will reduce your monthly repayments but you could have to pay more interest overall in the long-run compared to if you had taken out a shorter term.
Transaction Fees
When refinancing a car loan be sure to assess the new loan terms as you could end up paying additional money in the process such as transaction fees, entry and exit fees.
When comparing refinancing options on Driva our quoted monthly repayments are inclusive of all fees. This includes fees the lender charges you and fees the lender pays us (some on your behalf).
Summing up
If you’ve decided that getting car refinance is the right move for you, Driva can help you take the next step and secure a great fixed interest rate loan. To get started, you’ll just need to tell us a few details about you, your car and your previous loan, and we’ll be able to give you personalised rates from our panel of over 30 lenders. Calculate how much you could save and get started today.
