How to refinance your car loan and save
Posted on 07 June 2016
If you’ve had your car loan for a while or your circumstances have changed, it may be worth considering your refinance options. Refinancing your car loan could reduce your interest costs and save you a considerable amount of money. Take some time to review your situation and you can work out if it’s time to replace your existing car loan with a more cost effective alternative.
Before you go any further down the path of refinancing, take five minutes to work out where you stand right now. Grab a pen and paper, phone your existing provider, and ask them for the following:
- The current balance on your car loan
- What date the car loan will be paid in full
- What the cost would be to pay off the car loan today
- What, if anything, would you have to pay in early repayment fees
- What interest rate you are currently paying
Once you’ve got all the details on your current loan, you can start to work out if it’s worthwhile making a change. Here are some straightforward questions you can ask.
Has the market changed?
One of the most obvious reasons for refinancing is because the market interest rates have lowered. If you want to understand the current interest rates you can do a little desktop research by searching for car loans. If interest rates appear to have dropped then it’s worth exploring your options.
Has your credit situation changed?
If you had a poor credit rating when you took out your car loan, you were probably set up with a higher interest rate. If you’ve now demonstrated a good payment history by making payments on time every month, your credit rating may have improved.
This could mean that you’re now eligible for a lower interest rate. You can either find out your credit rating by contacting one of the credit agencies or contact your preferred car loan provider and ask them what interest rate you could enjoy.
Has your financial situation changed?
When you set up your car loan, you may have had less or more money available to make repayments. If your financial situation has changed you may need to adjust your loan to make it work for you now.
I want to pay off my loan faster
If you’ve got more funds available then it makes sense to pay off your car loan faster. Refinancing is a great opportunity to review the term of your loan (how long it will last). Increasing payments will allow you to pay off your car loan faster and reduce the amount of interest you pay.
I need to reduce my payments
If you’re strapped for cash then refinancing could be a good opportunity to reduce your payments on your loan. Unfortunately this will increase the term of your loan, but it’s a good idea if you’re concerned about your ability to manage the payments today.
Another alternative if you’re looking for ways to improve your financial position is a top up loan. If you’ve worked hard to pay off a chunk of your car loan but now find you need access to cash, CFS Finance may be able to offer you a top up loan that will give you the funds you need to deal with your personal expenses. Contact one of our team today on 0800 88 2000 for more details.
Important things to remember
If you decide to go ahead and refinance, there are a couple of important things to remember.
Early repayment fees/charges
Most Car Loan providers charge an early repayment fee if you decide to pay your balance in full before the loan is due to be settled. It’s important to take this fee into consideration in your calculations, as it may remove any cost savings you would have made from a reduced interest rate.
If you refinance with Online Car Loans you can include your early repayment charge as part of the total balance of your new car loan. If you choose to do this it’s important to remember that you will be charged interest on it as well as the main balance of your loan.
Your full settlement amount
Your current balance is not necessarily the full amount of your loan. Make sure you ask your current car loan provider for the full settlement amount if you were to pay off your car loan today. This is the amount you need to base your new car loan application upon. Working from your current balance could leave you short of funds.
Ready to refinance?
If you’ve decided that refinancing is for you, or you’d like to explore a top up loan, give our friendly team a call today. We will be happy to chat about the best interest rate that we can offer and the benefits you can enjoy from having a car loan with us. If you’re an existing customer we’ll be happy to review your payment history to see if there’s an opportunity to change the structure of your loan or offer you an improved interest rate.