Remember back when you took out your car loan? Chances are you were probably not in as stable a financial situation as you are now, meaning you were probably limited in the choice of lenders willing to offer you finance.
And oh, how your lender knew it. That interest rate looks awfully high compared to other loan products you've seen advertised recently.
But one thing you may not realise is that that you are not locked into your loan.
In fact, you may be in the ideal position to refinance your loan to a new car loan – depending on your personal and financial circumstances.
Refinancing is when you’ve taken out a loan from a lender and want to transfer it to a different lender for a financial benefit. The main benefit is usually to reduce the interest rate, which brings down the amount you pay back each month. Typically, secure car loans offer the most competitive interest rates.
So how will you know when it's the right time to refinance? Check out our top five tips and you'll get a good idea:
The main benefit to refinancing is usually to reduce the interest rate, which brings down the amount you pay back each month.
Tips for Refinancing a Car Loan
1. Pay your bills on time for at least 12 months
If your current car loan carries a high interest rate, and you’ve been making payments on time for 12 months, then the time to refinance is now. Lenders will look upon that year’s worth of good payment history very favourably, so you’ll likely have far more avenues open to you than when you originally took the loan out.
And because cars depreciate over time, it’s better to refinance as soon after that 12-month mark as possible…
2. Don’t leave it too late
That’s because as time goes by, the asset you’re purchasing is worth less and less. So if you default on your loan and the vehicle has to be repossessed, the lender wants to ensure they can get their money back by selling it.
For the same reason, buying a later model car is advisable as, in general, the older the car, the harder it is to refinance.
3. Make sure you’re up to date with your payments
No new lender will touch you if your credit history shows you’ve failed to pay your current lender what you owe them. So pay off any defaults as soon as you can.
4. Pay all your other bills on time
Gas, mobile phone, Foxtel, everything. Any new defaults on your credit history will severely hinder your chances of refinancing; a lender looking at your credit history for the first time will see that you have trouble meeting your financial commitments and may decide you’re not worth the risk.
5. Maintain relatively stable employment and address (if possible)
Sometimes you have to move on from a bad job or home situation. However, if a lender looks at your employment and address history and can see that it changes frequently, they may view you as an unsettled applicant.
Lenders don’t want to entertain the idea of chasing you across Australia if something goes wrong. And if it looks like you change jobs often, they’ll ask how long it might be before the work dries up and you can no longer pay your bills.
Call us. We'll give you unbiased advice.
With over a decade of experience, Rapid Finance has built a reputation of matching our clients with the right car refinancing product. In most cases, we can help you find the most suitable loan for you.
Call 1300 467 274 to discuss your situation today.