Whether you took out a loan to buy your dream car or a reliable vehicle to go from A to B, chances are your circumstances may have changed since you first got behind the wheel.

Did you know it’s possible to refinance car loans and potentially enjoy the benefits of lower interest rates and fewer fees, lower repayments and better loan terms?

You may be able to refinance your car loan with your existing lender, or find a new lender by shopping around before deciding whether to shift gears and make a switch.

• Why refinance your existing car loan?
• Eligibility criteria
• Steps to refinance a car loan
• Considerations before refinancing
• Tips for successful refinancing

Why refinance your existing car loan?

One of the most common reasons for refinancing your current car loan is to secure a lower interest rate.

Whether your credit score has improved, or interest rates have dropped since you first took out your loan, refinancing may reduce the amount of interest you pay in the long term.

A lower interest rate means you might be able to reduce your monthly repayments, giving you access to additional funds, which means more money in your pocket for other expenses or allowing you to save money.

When you refinance your car loan, you may also be able to renegotiate your loan term, such as switching from a variable interest rate to a fixed rate, giving you more predictability in your payments. You might also be able to change the payment frequency or adjust the loan term to better suit your current financial situation.

Eligibility criteria

There are some important things to keep top of mind if you want to refinance your car loan.

Your credit score

First up, your credit score. Your credit score is a number calculated based on your financial history, and lenders look at this number to assess your financial responsibility and the level of risk you may pose.

Lenders are looking for good credit history, so the higher the score, the less risky you’re considered, and the more likely you are to be approved for a new loan. If you’ve had a recent uplift in your credit score, you may want to apply for refinancing.

Your vehicle

Lenders will look at the age and condition of your vehicle – if your car is too old, or has high kilometres, an unsecured personal loan may be more suitable.

There are also specific loans for electric or hybrid vehicles, so be sure to explore these options, as they could offer better terms to support eco-friendly purchases if this is the type of vehicle you are after.

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Your LVR

Then, they will likely review your loan-to-value ratio (LVR), or the amount you owe on your current loan compared to the current value of your vehicle. Lenders typically prefer a low LVR as it shows the loan amount is less than the car’s value, lowering their risk.

For a Westpac car loan, you’ll need to be over 18 years of age, have regular permanent income, and be an Australian or New Zealand citizen or hold an acceptable visa with confirmed employment in Australia.

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Steps to refinance a car loan

Below are some of the steps to refinancing a car loan. Each one could help set you up for success.

1. Evaluate your current loan

The first step is to assess your existing car loan. Check the remaining loan balance, interest rate, fees and terms to understand your current financial obligation.

It’s possible to calculate if you'll save money by using a Car Loan calculator to see how much your monthly car loan repayments could be before you apply.

2. Research and compare lenders

Once you’ve evaluated your original car loan, it’s time to start looking at potential lenders. Consider interest rates and terms, as well as the lender’s reputation, customer service, and any additional fees or conditions attached to the new car loan.

3. Prepare your documentation

To apply for car loan refinance, you’ll need to prepare some important documents. These typically include your current loan statement, proof of income (such as payslips or tax returns) and vehicle details, including make, model, year and VIN.

4. Apply for refinancing

Once you’ve chosen your lender and prepared your documents, you’ll need to apply for refinancing.

Westpac allows you to refinance your current car loan from another lender, or, if your car loan is already with Westpac, you can choose to refinance with another secured car loan or an unsecured personal loan. This can be done quickly online in around 10 minutes.

5. Finalise the loan

If your application is approved, the final step is to review and accept your new loan contract, so make sure you understand the terms and conditions before accepting.

Once everything is in place, you’ll pay off the original loan with the new loan funds and start making payments on the new loan under the agreed loan contract.

Considerations before refinancing

Look out for any possible roadblocks. Before committing to a new loan, it’s important to consider any fees and charges you might encounter along the way.

These could include early exit fees from your current lender, as well as application fees, ongoing fees, or loan establishment fees on your new car loan. Think about whether these costs undo the potential savings you’ll receive from refinancing in the first place.

It’s also important to remember that a loan application for refinancing can impact your credit score, especially if you make multiple new car loan inquiries within a short period of time.

Then, make sure you fully understand the terms and conditions of a new loan, including the interest rate, repayment schedule, and fees for any late or missed payments.

Tips for successful refinancing

To make the most of refinancing your car loan, there are a few things you might want to consider:

• Maintain a good credit score: Pay your bills on time, reduce your credit card balances, and check your score regularly.
• Shop around for the best rates: Take the time to compare rates and terms from multiple lenders so you have a better chance of finding a car loan option that suits your needs.
• Think about timing when refinancing your car loan: If possible, monitor interest rates and market conditions. Refinancing your car loan during a period of lower interest rates could be beneficial.

To sum up

Refinancing a car loan could offer a range of potential benefits, from lower interest rates and reduced monthly payments, to better terms and access to additional funds. It’s important to think about your financial situation and personal circumstances, explore your options, and consult with a financial advisor if you’re unsure whether refinancing your car loan is the right move for you.

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