Did you know over 2.7 million Aussie drivers currently have a car loan? That’s around 13% of the population, and these numbers are on the rise. It’s no secret that Australians love their cars, and in many places, they’re a necessary way to get around. However, you want to be smart when it comes to your car loan — and that might mean it’s time to refinance.
With the average car loan in Australia taking a big chunk of a family’s budget each month, this is an area you could potentially save big. If you’ve recently increased your credit score, for example, this could save you big with your interest rate long-term.
Not sure where to begin? We have you covered. Here’s our 5-step guide to easily refinance your car loan.
1. Check Your Current Loan
Before you begin, it’s a good idea to check into your current auto loan. You should keep in mind the following information:
- Your current monthly payment
- The payoff amount (ie. how much do you still owe)
- Your interest rate
- The amount of time left to repay the loan (in months)
- Your lender name
There might be some terms in your current auto loan that would lead you to keep the rate you already have. In some cases, you might have a prepayment penalty. This means there’s a fee you have to pay if you pay your loan off early or refinance through another lender. Though not common, this might outweigh the benefits of refinancing your auto loan.
Finally, take a moment to review the current value of your car. Online car retailers can give you a good baseline but don’t hesitate to check out dealerships in your area. If your loan balance is greater than the value of your car, you might have a hard time refinancing.
2. Pull Your Credit Report
Next, your credit report is the best indicator of what types of auto loan refinancing options are available to you. It’s a good habit to check your credit report regularly. Not only can you keep up with your rating, but you can spot any fraud or errors before they become an issue.
If you have a history of paying all of your auto loans back on time (at least for 6 – 12 months), there’s a good chance your rating has improved since you first took on the loan. Remember, there are different types of credit bureaus. Each lender uses its own score and approval criteria, so your score alone won’t be the only tool at your disposal.
3. Gather Important Information
You’ll be glad to know it’s easy to apply for an auto loan refinance. In many cases, you can do so quickly online. However, make sure you have these key documents before you begin:
- Your driver’s license
- Vehicle registration
- Your car’s VIN number
- Proof of auto insurance
- Proof of employment
- Loan payoff amount statement from your current lender
When you have this ready to go, it’s time to take on the next step in the application process.
4. Shop Around for Savings
Of course, you don’t want to refinance blindly. You want to make sure you’re getting the best deal for your current situation. Some lenders offer pre-qualification, and this means you can get a quote in minutes to see your potential rate. These don’t usually affect your credit score, so it’s a good idea to request several.
Compare loan offers to see which makes sense for you. Remember a lower monthly payment isn’t always the better option. Consider the long-term cost using a loan payoff calculator. If the savings is more than you currently pay, this is a great option. Narrow down where you’d like to apply, and then continue to the final step.
5. Apply for Auto Refinance
Finally, decide whether refinancing your auto loan makes sense. Now that you know whether or not you’ll qualify and your new interest rate, you can make an informed decision.
If you think it’s likely that you’ll qualify for a lower rate and payment, this is likely a good option. Similarly, if you shorten your loan term without a significant change in payment, you’ll save over time. Above all, this should be a monthly expense you can afford in your current budget.
When you’re ready, apply to refinance. You might choose to submit multiple applications to different lenders to compare rates. This can be a smart move, but do this all at once so it doesn’t affect your credit score separately. You’ll need to complete the paperwork and sign a new loan document. Once financed, your new lender will pay off your previous one, ending your original loan.
Are You Considering an Auto Refinance?
Refinancing your auto loan can be a smart choice. If you end up with a lower monthly payment or shorter loan term, you might save big. However, always tread carefully when considering a new loan.
Not sure where to begin? Contact the team at Debt Busters on 1300 368 322. Our car loan experts are here to help determine what’s right for your budget and goals. Not all loans are alike, and refinance isn’t always the right choice. Make the decision that’s right for you.