How to Refinance Your Car Loan and Lower Your Repayments
Car loan refinancing means replacing your current car loan with a new one, usually from a different lender, to get a lower interest rate, smaller repayments or better loan features. The new loan pays out your old one, and you make repayments under the new agreement.
Many Australians are paying more than they need to on loans taken out when rates or their credit history looked different. FLOW Financial Services helps customers refinance car loans, asset loans, business loans and credit card debt. This guide covers when refinancing makes sense, what it costs and how the process works.
What Is Car Loan Refinancing?
Refinancing replaces an existing loan with a new one on different terms. With a car loan, the new lender pays off your current balance and you start fresh repayments. Refinancing can give you:
- A lower interest rate
- Smaller monthly repayments
- Better loan features, such as no early repayment fees or a redraw facility
- A chance to switch between a fixed and variable rate
- One repayment instead of several, if you consolidate debts
Done well, refinancing can free up cash flow, reduce financial stress and help you pay off the loan sooner.
Why Refinance a Car Loan?
Most people refinance for one of these reasons:
- Lower interest rates: rates have dropped, or your credit score has improved, so you may qualify for a better rate.
- Lower repayments: a longer term can ease pressure on your budget, though you may pay more interest overall.
- Debt consolidation: some people roll car finance and other debts into a single loan. See consolidation loans for bad credit.
- Access to cash: if your car has equity, refinancing can let you borrow extra for other expenses.
- A balloon payment is due: refinancing the balloon spreads the lump sum over a new term.
When Does Refinancing Make Sense?
There’s no single answer, but these are common signs it’s worth a look:
- Your rate is above the market average. If rates have dropped since you took out your loan, you may be overpaying.
- Your repayments are stretching your budget. Refinancing to lower repayments can give you breathing room.
- Your credit score has improved. A higher score can help you qualify for a lower rate.
- You’re paying for features you don’t use. Some loans charge for redraw or other features you may not need.
- You want to pay the loan off faster. If you earn more now, a shorter term could clear the debt sooner and save interest.
- Your fixed rate is about to end. It’s a good time to compare what’s available before you roll onto a new rate.
- You have high-interest debts. Consolidating credit cards or personal loans into one repayment can be simpler and cheaper.
Example: you bought a car in 2023 with a five-year loan at 8%. Since then, rates have moved and your credit score has improved. Refinancing at 6% could lower your monthly repayments and save you a meaningful amount of interest over the rest of the term.
Risks and Things to Consider
Refinancing isn’t always the right move. Check these before you switch:
- Fees and charges: exit fees, application fees, discharge fees and break costs can be higher than the money you save. See hidden fees in loans.
- A longer term: lower repayments can mean paying more interest overall.
- Negative equity: if your car is worth less than you owe, refinancing may be harder or come with less favourable terms.
- Credit score impact: several applications in a short period can lower your score. A broker can check which lenders suit you first. See how to avoid hard credit checks.
Who Is Eligible to Refinance?
Lenders look at the same things they did for your first loan, plus your current loan and the car:
- Credit score: a stronger score can help you get a lower rate. If yours has improved since you took out your loan, you may be in a better position now. See how your credit score affects your interest rate.
- Income: you’ll need to show stable income, usually with payslips, bank statements or, if self-employed, tax returns or BAS.
- Loan-to-value ratio (LVR): what you owe compared with what the car is worth. A lower LVR makes refinancing easier.
- Vehicle age and condition: some lenders limit the age or kilometres of the car they’ll refinance.
- Your existing loan: the lender will need your current balance, interest rate and repayment details.
How Much Can Refinancing Save You?
Here’s an example:
- A $40,000 car loan at 7% over five years has repayments of about $792 a month.
- Refinance to 5.5% over the same term and repayments drop to about $764 a month.
- That’s about $28 a month, or around $1,680 over five years.
Even a small rate reduction adds up. Always compare the saving against any fees to switch.
Refinancing Other Loans
The same approach works for other debts. FLOW also helps refinance business loans, asset loans and credit card debt.
Common Refinancing Myths
“Refinancing is too complicated.” It’s simpler than most people expect, especially when a broker handles the paperwork for you.
“I need a perfect credit score to refinance.” A good score helps, but many lenders offer refinancing to people whose credit isn’t perfect. Secured loans, where the car is collateral, usually have lower rates than unsecured loans.
“It’s not worth it for a small rate drop.” Even 0.5% can add up over the life of a loan. Weigh it against any fees.
“I’ll have to restart my loan term.” You can keep the same term or shorten it to pay the loan off sooner.
How FLOW Can Help
Refinancing can feel like a lot of work, but you don’t have to do it alone. FLOW’s finance brokers:
- Compare rates and terms across our lender panel
- Check the fees on your current loan and any new one
- Handle the paperwork and application
- Give you clear, straightforward advice on whether refinancing is worth it
FAQs
Yes, but your options may be limited. It may be harder to get a lower rate, but a broker can find lenders who consider your situation.
Costs vary by lender. You may pay application fees, discharge fees or break costs. Always weigh these against the potential saving.
Usually a few days to a couple of weeks, depending on the lender and how quickly you provide documents.
The application creates a credit enquiry, which can lower your score slightly. Managing the new loan well can improve your score over time.
Yes. If you can afford higher repayments, a shorter term can help you pay off your car sooner and save on interest.
Is Now the Right Time to Refinance?
The right time is when you can get a lower rate or better terms, or improve your position overall. Want to know what you could save? Contact FLOW Financial Services for a no-obligation refinancing review.