Car Loan Refinance

Are you looking to get a better deal on your current car loan? Compare competitive refinance offers with Savvy.

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on July 2nd, 2024       

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Car loan refinancing can be a highly useful tool for adjusting your car loan. Whether you’re looking to reduce your payments, cut down on interest, change your loan term or add new features to your agreement, it’s important to understand how the process works and whether it’s the right move for you. That’s where Savvy can help you out.

With over 40 trusted and industry-leading car financiers on our panel, our experienced consultants can help you navigate the refinancing process from application to settlement, which all takes place online. We can help you find your ideal lender and secure the best rate available for your profile, so get started with a free, no-obligation quote today!

What is car loan refinancing?

Car loan refinancing is the process of switching your current car loan to another, which can either be a different or updated product with the same lender or a fresh loan with a new lender. Essentially, this involves taking out a new car loan to pay out your old one and continuing your repayments on a different set of terms.

For this reason, refinancing may be treated as a new application. For instance, if you originally took out a $50,000, five-year car loan and are looking to refinance it after two years with $20,000 paid off, you’ll effectively be applying for a three-year, $30,000 loan.

Refinancing is a common way for borrowers to adjust their loan terms to be more favourable, such as accessing a lower interest rate or reducing their ongoing repayments to add more space in their budget. By applying through Savvy, you’ll be able to speak to one of our experienced consultants, who’ll talk you through the potential benefits and drawbacks of refinancing your loan.

Why should I refinance my car loan?

There are many reasons why someone might look to refinance their car loan and access a new deal. Some of the main reasons why you might look to do so include:

  • To lock in a better interest rate: if the market has taken a turn towards lower interest rates or your financial position (such as your credit score) improves over the course of your car loan, you may be eligible for a lower interest rate. This can help you save over the remainder of your car loan.
  • To reduce your fees: some lenders may offer lower fees than what you’re currently paying, so you may look to switch to move away from having to fork out in this area.
  • To lengthen or shorten your loan term: because your circumstances may have changed since you took out your loan, some people may opt to change their term. Those who have more cash available may shorten the term to help them save on interest, while others may stretch their loan back out to reduce the cost of their repayments (which increases your overall loan cost).
  • To remove or add a co-borrower or guarantor: if you signed up for your loan initially with another borrower on the contract or a guarantor, the only real way to remove them is to take out a new loan with fresh terms. On the flip side, adding either of these to your loan will also require a refinance.
  • To add a residual payment: some lenders will give you the option to add a residual, or balloon, payment when taking out your loan. This is a lump sum to be paid at the conclusion of your agreement and adding one can reduce the cost of your ongoing repayments (though they increase the interest you pay overall).
  • To access new features: you may simply wish to refinance your loan so you can gain access to new and improved features which aren’t included in your current deal. For instance, if your current car loan doesn’t come with free additional repayments, you may wish to switch to one which does.

How much can I save by refinancing my car loan?

The amount you can save by refinancing your car loan will depend on a range of factors, including the interest and fees, loan term, loan amount and balloon (if applicable). The following table shows how refinancing your loan to one with a lower rate can help you save:

Interest rate Repayments Balance after two years Interest after two years Refinanced rate New repayments Total interest Total saving
9.50% p.a.
$631
$19,669
$4,791
9.00% p.a.
$626
$7,639
$166
9.50% p.a.
$631
$19,669
$4,791
8.50% p.a.
$621
$7,474
$331
9.50% p.a.
$631
$19,669
$4,791
7.00% p.a.
$608
$6,985
$819

Calculations based on a $30,000 car loan repaid monthly over five years.

Additionally, shortening your term can have a major impact on the cost of your loan. Here’s how it works:

Loan term Balance after two years Interest after two years Refinanced term New repayments Total interest Total saving
Five years
$19,326
$3,753
N/A
$602
$6,069
N/A
Five years
$19,326
$3,753
Four years
$870
$5,299
$770
Five years
$19,326
$3,753
Three years
$1,677
$4,547
$1,522

Source: How to Pay Off Your Car Loan Faster – Savvy. Calculations based on a $30,000 car loan repaid monthly with a 7.50% p.a. interest rate.

However, it’s important to note that many lenders will charge break fees for ending your agreement early. This means that you could end up paying hundreds to exit your contract ahead of schedule and take up your new one, which could reduce or eliminate the benefit of refinancing in the first place. It’s important to check with your lender to see whether they charge early exit fees and how much they may cost you.

Can I refinance my car loan if I have bad credit?

You may be able to refinance a car loan with bad credit, but whether you can do so will depend on a range of variables, such as your credit score, repayment history and the lender you’re applying with. When applying for a refinance in this situation, you’ll need to show your lender the following:

  • You’ve consistently made repayments on time and in full across your car loan term
  • You’ve paid down or eliminated other bad debts
  • You’ve maintained consistent recent employment and income, as well as a stable residential history

Applicants who can prove these will fit into the “correctable credit” category, which will make approval more likely. However, if your credit score has dropped since you took out your car loan, refinancing it could cost you more money in the long run both on break fees and increased interest.

Why refinance your car with Savvy?

The car loan refinancing process explained

The pros and cons of refinancing your car loan

PROS

Save money on your car loan

By refinancing your car loan, you can gain access to more affordable rates and fees, as well as potentially take advantage of a shorter term or free additional payments, to save more than you would have otherwise.

Add greater flexibility

You can adjust the loan term to better suit your financial situation and goals, whether you're struggling to keep up with high monthly payments and want to spread them out over a longer period or you're after a shorter term with less interest overall.

Switch to a new lender

If you're dissatisfied with your current lender's customer service, online features or interest rates, refinancing allows you to shop around and find a lender that better meets your needs.

CONS

Fees may outweigh the benefits

It’s important to be mindful of whether there are any early exit fees with your current car loan or application fees with the new one, which may negate the benefits of refinancing in the first place.

Potential for higher interest

While refinancing your car loan can potentially lower your interest rate, there's also a risk that you may end up paying more interest if your credit score has declined, market interest rates have risen or as a result of a lengthened term.

Risk of negative equity

Negative equity occurs if the car has depreciated faster than you've paid down the loan balance. If you refinance a car with negative equity, your new lender may not be willing to offer the full balance of your outstanding debt, leaving you to cover the shortfall.

Common car loan refinancing questions

How soon after I take out my car loan can I refinance?

In theory, you can refinance your car loan shortly after you take it out. However, attempting to do so will mean you have multiple enquiries on your credit file in quick succession, which may make it more difficult to get approved. When refinancing, it’s worth determining when the most beneficial time to switch your loan may be to maximise your savings or increase your level of comfort in managing your repayments. For instance, refinancing in the last six to 12 months may not be worth the effort if you have to pay exit fees and only achieve a small saving.

Can I switch from a fixed interest rate to a variable rate car loan?

Yes – by applying with Savvy, we can help you switch your car loan from one with a fixed rate to a new one with a variable rate. Speak with your consultant about your options if you’re looking for a variable rate car loan.

Do I have to pay a deposit when refinancing my car loan?

No – you won't be required to pay a deposit as part of your car loan unless specifically requested by the lender. This may be because your new lender has different criteria or your financial situation has changed since you took out your loan. However, this won't be necessary in most cases. Speak with your Savvy consultant if you're unsure.

How old can my car be when refinancing my loan?

We’re partnered with lenders who can help finance cars as old as 20, while others may not impose an age limit at all (provided your car meets their qualification criteria).

Can I trade in my current car with finance owing?

Depending on the terms of your agreement with your lender, you may be able to trade in your vehicle with finance owing on it. For instance, you may have the option to use the funds from your vehicle sale to pay off the remainder of your loan. If you’re trading your car in for another one, you may be able to refinance to switch your loan’s security to your new vehicle instead. You can speak with your Savvy consultant about what your options may be today.

What happens if I have negative equity on a car loan when I go to refinance it?

Negative equity on a car loan is when the amount you owe your lender is more than the value of your vehicle. In this situation, upon refinancing your car loan, you may find the amount you’re approved for is less than your loan’s remaining balance, so you may have to pay the difference out of pocket.

How do I work out how much a car refinance save me?

The amount you can save will depend on a range of factors, such as the size of your loan, difference in interest rates, length of your term and more. You can use tools such as a car loan repayment calculator to help you work out how much you may save in your particular instance. Your Savvy consultant will also help you work out what your savings may be when you apply with us.

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