What do I need to know if I’m thinking about refinancing my car?
It’s possible for some people to save money by refinancing their car, as they’ll sign up for a new loan with different terms, such as a lower interest rate or different repayment schedule. This can mean you’ll pay less in the long term, or allow you to change your repayments to reflect your current circumstances.
How does refinancing work?
When you refinance your car, you’re technically using your car as collateral to pay off your existing loan with a new one.
Usually, you’ll start off by finding a new lender who is offering a better agreement. If you decide to refinance, they’ll liaise with your old lender to settle your current loan. Once everything is finalised, you’ll switch over to a new payment plan with your new lender.
Why should I think about refinancing?
Refinancing allows you to sign up for a new contract that better suits your current circumstances.
You might have improved your credit profile and now qualify for a lower interest rate, or you may want to change your repayment schedule so you can pay a different amount each month. Common refinance agreements include:
- Changing the length of the loan: You may choose to extend the time it takes you to pay back your loan, potentially lowering the cost of your monthly repayments. Alternatively, you might want to repay your loan back over a shorter period so that you could pay less interest overall.
- Lower interest rate: If you qualify, you may want to ty to take advantage of a lower interest rate. This might mean you’ll pay less interest overall and could reduce your monthly payments or extend the repayment period without increasing how much you’ll pay overall.
- Take off or add someone to loan: If you’ve co-signed a loan and you want to remove the other person, or if you want to add someone to your car finance agreement, you could do so by refinancing as you’ll be negotiating a new contract.
What to watch out for when refinancing your car
While refinancing may allow you to get a better credit arrangement to suit your circumstances, there are a few things to be careful of:
- Fees and penalties: Your old lender may have early repayment penalties in place and your new lender might charge transaction fees. Don’t forget to take these into account when you’re deciding whether refinancing has a financial benefit.
- The overall cost: Especially if you’re agreeing to longer terms of repayment, make sure to weigh up how much refinancing will cost you overall. Longer loans can cost less each month but you can end up paying a lot more over time, depending on the interest rate.
- Missing payments: The paperwork that accumulates during the refinancing transition can become overwhelming, and sometimes things get delayed or agreements change. You may miss a payment on your current loan or your new one, which will impact your credit profile. Make sure you’re clear on how much you owe to both your old and new lender, and when you need to pay it by.
How do I refinance my car?
Start by doing some research and running the numbers to find out whether refinancing is worthwhile for you in the long run. If you decide it is, the process is relatively simple. Typically, you’ll:
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- Apply to new lender: You’ll usually need information about your current loan, along with your car’s details and proof of your income. Keep in mind that when you apply for a loan, lenders will carry out a credit check, which can have an impact on your credit score.
- Sign an agreement: If you’re approved, review the refinance terms to make sure they still suit your circumstances. Once you’re happy, complete the application with your new lender. They should sort things out with the old lender, and you’ll begin to make payments on your new loan.
and find out how The Car People can help you secure a loan for your next used car.