Refinancing Your Car Loan in Australia: Complete Guide

If you're partway through a car loan and wondering whether you could be getting a better deal, refinancing might be the answer. Car loan refinancing involves replacing your existing loan with a new one, typically to secure a lower interest rate, reduce your repayments, or access equity in your vehicle. For many Australian borrowers, it's an underutilized strategy that can lead to significant savings.

What Is Car Loan Refinancing?

Refinancing your car loan means taking out a new loan to pay off your existing one. The new loan may have different terms—a lower interest rate, different repayment frequency, shorter or longer term, or additional features like redraw facilities. Essentially, you're replacing your current finance arrangement with one that better suits your current circumstances.

The process involves applying for a new car loan, using those funds to pay out your existing loan, and then making repayments on the new loan going forward. The car remains as security, with the new lender's interest registered on the title.

Reasons to Consider Refinancing

Lower Interest Rates: This is the most common reason for refinancing. If interest rates have dropped since you took out your original loan, or if your credit score has improved, you may now qualify for a better rate. Even a reduction of 1% to 2% can translate to meaningful savings over the remaining loan term.

Reduced Monthly Payments: Extending the loan term through refinancing can lower your regular repayments, freeing up cash flow for other needs. However, be aware that a longer term usually means more interest paid overall, so weigh this carefully.

Access to Equity: If your car has retained its value well and you've paid down a significant portion of the loan, you may have equity—the difference between what the car is worth and what you owe. Some refinancing products allow you to access this equity as cash.

Better Loan Features: Your original loan might lack features you now want, such as redraw facilities, flexible repayment options, or the ability to make unlimited extra repayments without fees.

Consolidating Debt: Some borrowers refinance to consolidate multiple debts into a single car loan, simplifying their finances. This can make sense if the car loan rate is lower than your other debts, though it's not always the best strategy.

When Does Refinancing Make Sense?

Refinancing isn't always beneficial. Here are situations where it typically makes good financial sense:

Interest rates have fallen: If market rates have dropped since you took out your loan, you might access significantly better terms. Use our car loan calculator to compare your current repayments against what you'd pay at a lower rate.

Your credit score has improved: If you've been making payments reliably and your credit situation has improved, you may now qualify for rates you couldn't access when you first borrowed.

You got a bad deal initially: Perhaps you were rushed into dealer finance or didn't shop around properly. Refinancing gives you a chance to correct that mistake.

Your loan has high fees: If your current loan has expensive ongoing fees, switching to a low-fee option can save money even if the interest rate is similar.

When Refinancing Might Not Be Worth It

Early exit fees are high: Some loans, particularly fixed-rate products, have substantial exit fees. If these fees outweigh the potential savings from refinancing, it's not worth switching.

Your car is too old: As vehicles age, lenders become more reluctant to refinance. Many won't offer new loans for cars over 7 to 10 years old. If your car is approaching this limit, refinancing options may be limited.

You're near the end of your loan: The benefits of refinancing diminish as you approach the end of your loan term. The upfront costs and effort might not be worthwhile for just a year or two of remaining payments.

Your car's value has dropped significantly: If you owe more than your car is worth (negative equity), refinancing becomes difficult. Lenders want the vehicle to provide adequate security for the loan.

How to Refinance Your Car Loan

Step 1: Review your current loan: Understand your existing terms— interest rate, remaining balance, fees for early termination, and any other relevant details. Call your current lender if you're unsure about any terms.

Step 2: Check your car's value: Get an estimate of your vehicle's current market value using online valuation tools or by checking similar listings. This helps determine your loan-to-value ratio and potential equity.

Step 3: Shop around for new loans: Compare offers from multiple lenders—banks, credit unions, and online lenders. Look at interest rates, comparison rates, fees, and features. Many lenders offer online applications with quick approvals.

Step 4: Calculate whether you'll save: Factor in any exit fees from your current loan and any establishment fees for the new loan. Calculate total savings over the remaining term to ensure refinancing is worthwhile.

Step 5: Apply and complete the switch: Once you've chosen a lender, complete the application. The new lender will pay out your existing loan directly and register their interest on the car's title. You then make repayments to the new lender.

Costs to Consider

Refinancing isn't free. Costs may include:

Exit fees on your current loan: Check your contract or ask your lender. Variable rate loans typically have lower or no exit fees; fixed rates may have substantial ones.

Establishment fees on the new loan: The new lender may charge setup fees, though some advertise no-fee refinancing.

PPSR registration: The new lender will register their interest on your car, incurring a small fee.

Always calculate the total cost of refinancing against the potential savings to ensure you'll come out ahead.

Tips for a Successful Refinance

Negotiate with your current lender first: Before switching, call your existing lender and ask if they can offer a better rate. They may match or beat competitors to keep your business, saving you the hassle of switching.

Consider the total cost, not just the rate: A slightly higher rate with lower fees might work out cheaper overall than a low rate with significant charges.

Don't extend the term unnecessarily: While extending your term reduces payments, it increases total interest. Try to match or shorten your original term if possible.

Conclusion

Refinancing your car loan can be a smart financial move, potentially saving you thousands in interest and improving your cash flow. However, it's not right for everyone or every situation. Carefully evaluate your current loan terms, potential new offers, and all associated costs before making a decision. Use our car loan repayment calculator to compare scenarios and see how different rates and terms affect your repayments. With the right approach, refinancing can put you in a better financial position for the remainder of your car loan.