Car loan interest rates vary based on the official cash rate and other market conditions, which means what is considered a competitive car loan one day could be worth less the next.
Car refinancing, however, means that people can switch to a more favourable car loan before the term of their existing deal ends.
In this way, refinancing your car loan is basically the same as a credit card balance transfer or re-mortgaging option for your home lone; instead of getting something new with the money you borrow, you are simply moving the balance somewhere else.
So whether you are finding your current car loan hard to handle or just want to figure out if you can get a better deal, here are five things that will help you make sure refinancing is done the right way.
1. Compare Car Loan Rates
Car loan interest rates are one of the most important things to look at when considering car refinancing.
If the market rates are similar to those of your current car loan, it may not be worth switching to a different option.
On the other hand, the savings could be considerable if there is a variation of even a few percentage points.
Considering car loan rates before deciding to refinance will not only reveal the value in switching to a new loan, but could also narrow down the choice of new car loans, so this is one step that should definitely be taken early on.
2. Calculate The Costs Of Refinancing
There can be a number of different fees that come with refinancing your car loan. Some lenders, for example, charge early exit fees or processing fees that could add hundreds of dollars to the process.
As Community First Credit Union explains on its page about car refinancing, “Different lenders charge different fees so you should check with individual financial institutions as to what fees and charges apply.”
The lender also notes that “not all car loans have early repayment penalties”, making it important to check with each specific lender and loan.
That way it is easier to be aware of the value in switching car loans and figure out the most cost-effective option.
3. Search For Your Ideal Terms and Conditions
While interest rates are a major influence in the decision to refinance a car loan, another common reason is to find more flexible terms and conditions.
Some car loans, for example, charge extra money for additional repayments, which means you have to stick to a rigid payment schedule or pay the price. In contrast, there are other car loans that allow additional payments without charging extra, cutting both interest and months off the life of a loan.
These more flexible loans are ideal for people with income that may fluctuate – such as freelancers or commission-based employees – because it means it is easier to stay on top of the loan and even get ahead.
So when car refinancing is being considered, looking at the terms and conditions will help make sure it is worthwhile in every possible way.
4. Use A Car Loan Calculator
Car loan calculators can make it easier to figure out the cost of a loan over its entire term, as well as to compare different loan options.
When considering refinancing a car loan, for example, entering in the details of a current loan will show how much more will be paid. If you then enter the details of a refinancing option, you will be able to see the difference between the two loans as a dollar value.
This step can help put car loan refinancing into better perspective so that you can make a more informed and beneficial decision.
5. Talk To Your Current Lender
If a current car loan is not working out the way it was planned, it can often help to contact the lender and discuss it.
While most car loans have locked in features, terms and conditions, when lenders are aware of financial difficulties or customer concerns, they may work harder to make the loan more convenient.
Similarly, if there a different loan that you think has better features, lenders may try to match them to keep you on board as a customer.
Although talking to current lenders does not always work when car refinancing is considered, it could save both time and money in some cases.
Car loans can often make people feel locked in to payment plans for years and years, but it is important to realise there are other options available.
With so many different car loan providers around, refinancing provides both flexibility and affordability so that a car loan is easy to deal with year after year.