How To Refinance Your Car Loan In NZ

How to refinance a car loan, you ask? At the start of the year, you might be one of those people that are looking for low interest rates in car loans.

For those planning to refinance, this basically means taking out another loan to pay off the remaining balance of your existing car loan. Most of the time, this will be secured by the purchased vehicle.

As for why you’ll want to do this, there are several reasons. Understanding when it’s a good idea to consider auto loan refinancing can be helpful when it comes to getting the best deal for your car.

Why should you refinance your car loan?

The main reason why people refinance their car loans is to save money. By refinancing, they can move from paying a high-interest rate, to one that might offer a lower interest. For example, you might take out a car loan with an interest rate of 11%, and then find a lender who is willing to refinance the loan with an interest rate of 8%.

Even the small 2-3% difference in interest rates can lead to even more savings down the line.

Another reason to refinance your car loan is to also take advantage of lower repayments as a result of the lower rates and fees. You can even extend the loan term when you refinance, allowing you to lower these monthly payments even further. Of course, this is also an option if you’re planning to switch to a different lender with a better deal.

Maybe they offer more features than your original loan, such as the ability to pay off your loan early without any fees. These can all be valid reasons for changing lenders.

One other benefit of car refinancing is the ability to get some cash for your equity. Some lenders offer cash-out loans that not only allow you to refinance the loan, but also let you have some cash to pay for other expenses.

What should I consider before refinancing?

Of course, as with any financial decision, you need to go through this carefully. Think about your circumstances first: Will refinancing really lower your repayments?

Perhaps the lender may have lower interest rates but may have higher ongoing fees. Maybe extending the loan term will lower the monthly payments, but increase the amount of interest rate you pay for the life of the loan.

You also need to look for a legitimate lender. This can be a tad challenging, as there are multiple providers with their own set of features and deals. It's now up to you to sort out factors other than low interest rates, such as transparency when it comes to fees, and checking reviews for customer experience.

According to Experian, another way that refinancing could affect you is with your credit score. When you first apply for this new loan, the hard credit inquiry your new lender conducts could cause your credit score to temporarily dip by a couple of points.

Of course, this should rebound over time as you diligently pay for your loan. However, it is still important to keep these caveats in mind if you want to keep a stellar credit score.

When should you avoid refinancing your auto loan?

Of course, refinancing your car loan isn’t always a good move. Sometimes, sticking with your current lender is still the best option. See examples below.

• When you’re already far along in your original loan, you may not necessarily feel the main benefits of refinancing. The amortization process actually makes it so that your interest charges gradually decreases over time. Refinancing is more recommended when you’re in the earlier stages of your loan repayments.
• When you’re driving an older car with a lot of mileage, lenders may not necessarily feel comfortable and worthwhile to issue loans for, since the car had already depreciated in value at this point.
• Your original loan has an early repayment penalty. In this case, you need to investigate further to see what kind of terms your original loan had. Make sure that there are no such penalties before you refinance your car loan.

When is the best time to refinance my car loan?

While it is commonly used to lower your monthly payments and interest rates, it can also help you take a break from ongoing monthly payments. Here are some common reasons for refinancing:

• You want to lower your monthly payments - Sometimes, your monthly payments can be really steep, so you might want to look into lowering them without caring too much about your current interest rates. In this case, you can try to refinance the current loan under a longer-term arrangement to lower the monthly repayment fees. Note that you might end up paying more interest over the course of the loan if you chose this route.
• You just got your initial loan from a dealer - Dealers might have higher interest rates than banks and credit unions. In this case, refinancing could help you get a lower rate with a different dealer or lender.
• Your credit score improved - An improved credit score can help you get a lower interest rate when you refinance your loan, as you can now leverage your credit history in order to get more favourable terms.
• Refinance loan rates have gone down - Most refinancing options fluctuate depending on multiple factors such as the prime rate. It’s possible that the car loan rates have gone down, especially if it’s been a while since you originally bought your car.

Choosing the Best Car Refinance Loan

• Interest Rates - With the main benefit of refinancing to save on your interest rates, you’ll want to use a car loans calculator to compare different lenders.
• Flexibility - Choose a lender that allows for flexible payments. Ask your lender if you can make weekly, fortnightly, or monthly payments. Are there possible penalties for early repayments? You’ll want to have all the bases covered before you make the switch.
• Maximum Loan Amount - Each lender have different maximum loan amounts offered. See which one has the best amount that works for you, especially if you have a specific figure in mind.
• Additional Fees - Of course, having lower interest rates may not always be good if you incur higher fees when you switch. That’s why it’s important to check all of your options to make sure you’re saving money when you refinance your car loan.

When it comes to comparing car loan options, glimp has you covered. We compile deals and offers from multiple lenders, allowing you to make easy rates comparison all on one page.