How common is car loan refinancing in Australia?
Car refinancing in Australia is relatively common among borrowers who are looking to reduce their monthly payments, obtain a lower interest rate, or adjust the term of their car loan. Factors such as changes in the economy, interest rates, and personal financial circumstances can influence how often individuals choose to refinance their car loans.
How car loan refinancing could help you
Several situations may prompt car owners to consider refinancing:
Interest Rates Have Dropped: If the Reserve Bank of Australia has lowered rates, or if there's more competition among lenders, borrowers might find they can secure a lower rate than they're currently paying.
Improved Credit Score: A car owner's credit score may have improved since the original loan was taken out, possibly qualifying them for a better rate.
Financial Hardship: If someone's financial situation has worsened, they might seek to refinance to lower their monthly payments and ease their financial burden.
Change in Market Conditions: Economic factors can change the landscape of auto financing. For instance, new entrants to the market or regulatory changes could make refinancing more accessible or attractive.
Personal Circumstances: Changes in personal circumstances, such as needing to reduce expenses due to a change in employment status, can also be a reason to refinance.
In some ways, car loan refinancing is like trading in your old car for a new one.
Every day drivers trade in their old vehicles to upgrade to something new. Sometimes it's to get a larger vehicle for a growing family. Other times it's to get a newer workhorse for an expanding business.
As time passes, situations change. What was right for us yesterday may no longer be right for us today. That's why we sell and buy old and new vehicles, because our car needs change.
However, something that many drivers don't consider is that car finance needs change too. As with cars, what was right for us in the past may not be right for us in the present or future.
That's where the option to refinance your car loan comes in. Should your circumstances change, car loan refinancing allows you to trade your old car loan for a new one. One which is more suitable for your new situation.
What are the signs your should refinance?
It isn't always easy to know when is the optimum time to refinance. In this recent article, we discuss 8 signs which indicate that now might be the right time to refinance your car loan.
Recommended reading: 8 signs you should consider car refinancing
3 common reasons why borrowers refinance
There are a range of reasons why borrowers refinance their car loans. But, broadly speaking, most borrowers refinance to get a more suitable car loan. They may want to:
1. Pay less total interest with a lower interest rate
Many borrowers refinance to take advantage of a lower car loan interest rate. Even a drop of 1 - 2% in your rate can make a big difference in the amount of interest you pay overall.
2. Secure lower monthly repayments
Should borrowers be having difficulty meeting their monthly repayments, they can often refinance to get a car loan with a longer loan term but lower and more manageable monthly repayments.
3. Get a more flexible car loan with fewer fees
Not all car loans are flexible, particularly when it comes to fees. However, some are more flexible than others. By refinancing you could be able to take advantage of a less rigid loan option.
Ultimately, the purpose of car loan refinancing is to get a new loan which is suitable for the borrower's new circumstances. What that means for each borrower will be different depending on their situation.
How much does it cost to refinance a car loan?
Exactly how much it will cost to refinance your car loan will depend on your choice of loan and lender. This includes your existing loan and lender, as well as the new loan for which you intend to apply.
Typically, though, the costs associated with car loan refinancing are as follows.
|Fee type||What it's for|
Early exit fees
For paying out your existing loan before the conclusion of the loan term.
To cover the paperwork associated with refinancing.
Your new lender may charge a loan setup fee at the beginning of your new loan.
Lenders charge different amounts for these fees. For pricing regarding your loan, contact your lender.
It's important to remember that while there are fees associated with refinancing, in the long term it could still save you money through lower interest costs or more flexible features.
When deciding whether to refinance your car loan, always weigh up the short term and long term costs.
How to get started with refinancing
Car loan refinancing doesn't have to be difficult, but it helps to have a little know-how before starting out. In this article, we discuss how to refinance your car loan.
Recommended reading: How to refinance your car loan
Car loan refinancing. Is it worth it for me?
As stated above, there are costs in relation to car loan refinancing. Although, these costs may be offset in the long term due to the savings associated with your new car loan.
Whether it will be worthwhile for you to refinance your car loan will depend on your circumstances and what you would like to achieve.
To determine whether car financing is suitable for you, ask yourself these questions.
- Has my situation changed since I first took out my car loan?
- Have those changes changed my car finance needs?
- Could I potentially save money by refinancing my car loan?
- Is my car loan becoming unmanageable?
- Do I need more flexible car loan options?
If you answered 'yes' to one or more of the above questions, then it may be worthwhile refinancing.
"Situations change. Refinance and your car loan can too."
Ready to refinance your car loan?
At Rapid Finance, we help drivers to get a better deal on car finance. We compare options from many different lenders to find finance that is right for your circumstances.
We've been finding finance for our customers for more than 20 years, and over that time we've built our reputation on tailored solutions and personable service and hundreds of 5-star Google reviews!