How to Refinance Your Car Loan
Refinancing a car loan can be a smart financial move, but it’s important to understand the process and know when it’s the right choice for you. This guide from CarRefinancing.ca will walk you through the reasons to refinance, key considerations, and examples of when refinancing can be beneficial—and when it might not be.
Why Refinance Your Car Loan?
Here are some common reasons why people choose to refinance their car loans:
1. Lower Interest Rates
If interest rates have dropped since you took out your car loan or your credit score has improved, refinancing could allow you to secure a lower interest rate, reducing your monthly payments and the total cost of the loan.
2. Reduce Monthly Payments
Refinancing can extend your loan term, resulting in lower monthly payments. This can free up cash flow for other financial priorities.
3. Pay Off the Loan Faster
If your financial situation has improved, you might refinance to a shorter loan term. This can help you pay off your car loan more quickly and save on interest.
4. Remove or Add a Co-Signer
Life circumstances change. Refinancing allows you to adjust the terms of your loan to remove or add a co-signer if needed.
5. Avoid Financial Strain
If you’re struggling to make payments, refinancing to a longer term or lower interest rate can provide much-needed relief.
Things to Keep in Mind When Refinancing
1. Fees and Penalties
Some lenders charge fees for refinancing or early repayment. Be sure to calculate these costs to determine if refinancing is worth it.
2. Loan Term
Extending the loan term can lower your monthly payments but may increase the total interest paid over time. Shortening the term can save interest but might raise monthly payments.
3. Vehicle Age and Mileage
Lenders may have restrictions on refinancing older vehicles or those with high mileage. Ensure your car meets the requirements of the new lender.
4. Current Loan Balance
Make sure the amount you owe is not more than the car’s value. Being "underwater" on your loan can complicate refinancing.
5. Credit Score
Your credit score plays a major role in the interest rate you qualify for. Check your credit report and improve your score if necessary before applying.
Financial Examples of Refinancing
Example 1: Beneficial Refinancing
Original Loan: $30,000 at 8% interest for 60 months ($608/month payment)
Current Balance: $20,000
Refinanced Loan: $20,000 at 5% interest for 48 months ($460/month payment)
Outcome:
Monthly savings: $148
Total interest savings: ~$1,700
In this case, refinancing lowers the interest rate and monthly payments, saving money both short-term and long-term.
Example 2: Not Beneficial Refinancing
Original Loan: $15,000 at 6% interest for 48 months ($352/month payment)
Current Balance: $10,000
Refinanced Loan: $10,000 at 5% interest for 36 months ($300/month payment, $500 in fees)
Outcome:
Monthly savings: $52
Total cost increase: $500 (fees offset savings)
Here, the cost of refinancing outweighs the benefit of lower monthly payments due to the fees involved.
Refinance Your Car Loan Anywhere in Canada
CarRefinancing.ca makes refinancing your car loan simple and accessible. Whether you're looking to lower your payments, reduce your interest rate, or adjust your loan terms, we work with lenders across Canada to find the best option for you. Start your refinancing journey today with CarRefinancing.ca and take control of your car loan!
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1. Apply online
Confirm your VIN and provide some details about the vehicle you're looking to refinance. We may ask for pictures of your vehicle.
2. Sign documents
Sign online without ever leaving home. Once your rate and pre-approval have been secured, your Finance Manager will send you documents via DocuSign to review and sign.
3. Get money
Reduce your payments with decreased interest rates. Plus, you can postpone Payments for 6 Months and Receive Cash Back of Up to $30,000!