Car Loans

Car Loan Refinance: How it Could Help You Boost Your Savings

Written by:

Georgia Matthews


June 4, 2020

Last updated

August 8, 2022

Reading time

5 minutes

Georgia Matthews

Georgia Matthews is a contributing Writer at Oiyo. She is currently studying a dual Bachelor of Laws / Bachelor of Arts (majoring in history and psychology) from the University of Queensland. Georgia has worked in a few law firms during her studies and is currently working in a corporate law firm. She is most passionate about writing, history, and travelling.

When it comes to car loans, it’s all too easy to set and forget. Getting approved is hard enough, and once that’s done, what more is there really left to do? Well, maybe more than you think. Just because you’ve managed to secure a loan doesn’t mean you’ve secured the best deal out there. If the market has changed or your credit score has improved, car loan refinance may be a smart option for you.

Refinancing can potentially mean you pay less over the life of your loan, helping to boost your savings significantly. In this article, we’ll run through why you should consider refinancing your car loan and other factors to think about before you do so. 

At the end, maybe you might just find there’s a better deal out there after all.

Car loan refinance: How it works

Essentially, refinancing your car loan means that you replace your current loan with a new one under different terms. This can be done by negotiating with your current lender, or switching to another provider. A new contract will then be entered into with the lender, covering the cost of your previous loan and introducing new terms.

Why consider refinancing your car loan?

Although it may sound like a crazy idea in theory, there are many reasons why you might consider refinancing. The major one is that it could help you negotiate a much better deal on your current loan. 

What constitutes a ‘better deal’ is (of course) entirely dependent on your own financial situation. That said, here are some common reasons a car loan refinance might be worth your time:

Interest rates

Interest is a big factor in the cost of your car loan over its lifetime. Refinancing can enable you to take advantage of lower interest rates offered elsewhere. This will save you money on your repayments by decreasing the amount you have to pay in each instalment. Your current lender may even offer a lower interest rate on your existing loan if your credit score has significantly improved, or you have been consistently making all of your loan repayments on time. 

Understanding interest rates

When doing your research to compare the interest rates of car loans, ensure that you are comparing the correct rates. There are a few different types of interest rates out there. For example, there are fixed versus variable interest rates. Many car loans are agreed on fixed rates, meaning that the interest rate is locked in for the term of the loan. Comparatively, variable rates can change depending on the loan market.

There are also base versus comparison interest rates. Base interest rates are percentages of the loan that is charged on top of your repayments. On the other hand, comparison interest rates are the base interest rate plus any additional fees and charges that you will pay in your repayment instalments. Comparison interest rates are designed so that you can compare the true value of the loan. There are some fees, such as late repayment fees or exit fees, that are not included in comparison rates, however. Be sure that you are aware of what you are paying for within the interest rates.

Loan term 

Negotiating a loan with a different loan term is also a reason to consider car loan refinance. The longer the loan term, the less you will have to pay in each instalment. This injects some flexibility into your finances, sparing you more money for extra expenses on a monthly basis. Though it will take you longer to pay back the loan, longer terms also typically offer better interest rates. 

Alternatively, the shorter the loan term, the quicker you pay off your loan. You may even be debt free considerably faster than if you had stuck with your original loan term. The only downside is that shorter terms usually mean higher interest rates. So, you’ll need to consider whether this is truly an affordable option for you. 

Additional fees and charges

Car loan refinance may sound ideal but make sure to watch out for additional fees or charges. Many lenders will charge you an establishment fee to set up your loan with them. Likewise, your previous lender may also require an exit fee to close your account with them. Another common charge is an early repayment fee, which applies when you pay off the loan early. 

Though the interest rate may be lower or the loan term more ideal, extra fees and charges can add up. Have a think about what features you are looking for in a loan, and make these a priority when doing research. Refinancing is all about affordability – you want your new, refinanced loan to be affordable for you.  

Things to consider before refinancing your car loan 

Pros and cons

Though a car loan refinance may sound like a good option, there are some things to consider before you go ahead. Here’s a quick rundown of the essentials:

Pros Cons
Lower InterestA car loan refinance can secure you a much  lower interest rate. This will save you money over the duration of your loan as you are paying less in interest. Expensive Loan TermThough the interest may be lower than your current rate, it could end up costing you more overall. Extended loan terms allow interest to accrue with each repayment so you will pay more in interest over the life of the loan. 
Custom Loan TermRefinancing may enable you to opt for a loan term that suits your current needs. You could pay off your loan faster or give yourself some more breathing space with repayments. Sometimes, even paying more in interest might be an affordable compromise if you are currently struggling with repayments. Additional FeesYour existing lender may require you to pay an exit fee to leave your previous loan. Your new lender may also charge you an establishment fee to set up an account with them. Do your research to ensure you are aware of all extra fees that may be payable. 
New FeaturesDifferent lenders may offer different features on a car loan, such as the flexibility to make extra repayments or pay the loan off early. Switching lenders is sometimes a good option to get the most out of your loan and, of course, save you money. You may also be able to negotiate better features with your current lender too. 
Agreement AlterationsRefinancing and entering into a new contract may mean that you can remove a co-signer from the loan agreement. Alternatively, you could add an additional one.  


Generally, car loans are secured, meaning that the car you purchase will be used as security for the loan. This allows you to borrow more money for a longer period of time. You may also qualify for lower interest rates. However, secured loans allow the lender to repossess the secured asset in circumstances in which you fail to make your repayments. 

With this in mind, some lenders will only offer secured car loans for newer cars. This is because the value of the car will cover the value of the loan. If your car is slightly older in age or model, you may have trouble refinancing your loan. If you succeed in finding a lender who will accept an older car as security, this will likely result in paying a higher interest rate. Otherwise, your car loan refinance could result in an unsecured loan, which means you will be able to borrow less than an unsecured loan and possibly for a shorter term. If you have an older car, speak to your lender to scope out your options. 

Credit score

As mentioned above, one of the reasons that lenders may provide the option to refinance your car loan is because your credit rating has improved. You can check your credit score by using one of these three credit reporting bodies; Equifax, Experian or Illion

As these bodies are approved by the Australian government, they are required to provide a copy of your credit report to you for free, once every 12 months. Ensure that the information on this report is correct, as incorrect information may lower your score. 

How to refinance your car loan 

1. Compare your options

The first step is to compare your options. Do some research online so you know what you will be paying for. Compare your current loan to the options on the market, and compare the options to each other. Ensure that the loan repayments for the new loan will amount to less than what you are currently paying for your existing loan. 

You will still be repaying the amount you originally borrowed, so the interest rates and fees are the components that you will be looking to reduce. Additionally, consider not only the interest rate and extra fees, but also the loan term. Be wary of deals that appear ‘too good to be true’. Remember, even though a loan may appear to be a better deal on paper, extra fees or differing repayment terms may mean you pay more over the life of the loan. 

2. Apply for a new loan

When doing your research, be sure to not apply for multiple loans. This will show up on your credit report, reducing your overall credit score. It will also reduce the likelihood that future lenders will accept your application, as they are aware that you have applied to many lenders in the past. 

Once you are satisfied with a lender and a particular loan they offer, you can apply! You may need to submit the requisite documents and any proof that you are applying for a car loan refinance. Have your identity documents handy, such as your driver’s licence and passport. Some lenders may ask for your credit history report, or they will conduct a search themselves. 

If you are approved for a new loan, you can continue to pay off your car loan under the conditions of your new loan. 

3. Ensure that your previous car loan is closed

To avoid any nasty surprises, ensure that your account with your previous lender is closed and the balance is at zero. You must double check this as you don’t want to be accruing any additional fees for an old loan that you are not bound under.

Looking to do more with your finances?

At Oyio, we’re trying to change the way we talk about money. We’re not financial advisors, but we can offer helpful insights and information on finance to help you navigate your finances. 

We write helpful guides covering everything from personal finance to insurance. Our aim is to make it easy for Australians to have access to simple, to-the-point financial guides. So, whatever financial query it is that you have, Oiyo is here to help!


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