Tag: refinancing a car

Overview of refinancing a car

The process of refinancing a car is similar to that of refinancing a home loan, whereby the existing loan is replaced by a new loan which is negotiated with more favourable terms for the borrower. Auto refinance has become more popular since interest rates have become low.

It is more applicable if the existing loan is for an expensive car as that gives greater scope for money saving by refinancing.

Refinancing a car
Refinancing a car

The amount of money you will save will vary according to how much of your current loan is outstanding, the length of time left on the loan and the difference between the interest rate on the old and new car loan. You will need to shop around and find out which provider has the most competitive interest rates. Shopping around online is certainly easier than physically visiting the various providers.

Use a car finance calculator to help to evaluate your options.

Important: when disclosing your financial details online, make sure that the site you are visiting is secure.

Typically, cars financed from a dealership have a high interest rate. If this is the case it may make sense to consider a refinance car loan. Ideally there should be at least a 1% difference between this and your existing loan.

Your existing lender may penalty charge you for early redemption of your loan. Additionally, you may be charged fees for the new loan application

Considerations of refinancing a car

Does the cost of auto refinance outweigh the costs saved with the new deal? If you were to reduce your monthly payments this would most likely be offset by an increase in the length of the time taken to pay off the loan.

How much of your existing loan is already paid off? If you have paid off the greater part of, then it might not be worth refinancing a car loan.

Check how much your car is worth on the open market. Refinancing providers are unlikely to lend more than the present value of the vehicle.

It is important to compare and contrast interest rates offered by the various providers.

If it was a while since you took out the original finance then be prepared for the more stringent rules which lenders now apply to borrowers. You may well have to provide more information about your finances than you would have had to previously.

To qualify for the most favourable interest rates you will need a good credit score, and be up to date with the payments on the existing loan.

If you do decide to refinance a car, it is important to take the time and effort to read the accompanying documentation carefully, paying particular attention to the small print.