When it comes to purchasing a new or used car most Australians take out a loan to finance their wheels. But if you find paying repayments becoming more of a tight squeeze due to the interest rate on the loan then it is time you consider refinancing your loan to something more affordable. Here is what you need to know when it comes to refinancing your car loan.
The main reasons as to why someone would want to refinance their car loan is to help them find something that is more affordable for them. This could be in the form of a loan that has a better interest rate or extending the term to make flexible payments. A difference of 1% or 2% can help you save hundreds of dollars when it comes to your loan.
The pros of refinancing a car loan
Refinancing comes with many benefits, but it is important that you research and compare your options before putting your signature on the dotted line. Some of the benefits are:
- Getting a low interest rate. By refinancing you can find a new lender that will offer you a lower rate than what you are currently paying. It can also help you save by lessening your monthly repayments.
- Extending your loan term. Being able to extend your loan term to help you manage your repayments can be beneficial in the long run.
- Have a new lender. This can be helpful especially if your previous lender wouldn’t budge when it came to negotiating. It can also give you access to a lender that has features that suit you.
The cons of refinancing a car loan
Although there are many benefits that come with refinancing, it does have its downside. Reading the fine print of a loan and making use of a loan calculator can show you if the loan will be affordable over the term of the loan. If you decide on extending your loan term you could end up paying more on the interest payments, which will result in you paying more over the term of the loan. You could also pay other fees such as transaction fees, and exit fees.
If you have a $25,000 car loan that comes with 8.1% for a period of 2 years you will end up paying $1,131.82 per month. Over a period of 2 years, you will pay a total of $27,163.68
However, if you decided to take the same loan amount and extend it by 5 years it could end up costing you $508.11 per month which is a total of $36,583.92, making a $9,420.24 difference. Using a loan calculator will help you figure out whether refinancing your loan will cost you more or help you save.