Ontario Car Refinancing Guide

Car refinancing is a process that allows you to replace your current car loan with a new one, ideally with better terms. For residents of Ontario, refinancing can be a strategic financial move, but it’s important to weigh the pros and cons, understand the potential benefits and pitfalls, and consider if it aligns with your financial goals. This guide covers all you need to know about car refinancing in Ontario, including when you should, shouldn’t, and might want to refinance.

Why Refinance Your Car Loan?

Refinancing can help improve your financial situation under the right circumstances. Here are some common reasons to refinance:

Reasons You Should Refinance:

Lower Interest Rates: If interest rates have dropped since you took out your loan, refinancing can save you money.

Improved Credit Score: If your credit score has improved significantly, you may qualify for a lower interest rate.

Lower Monthly Payments: Refinancing can extend the loan term, reducing monthly payments and easing financial strain.

Switch Lenders: If you’re unhappy with your current lender’s customer service or policies, refinancing lets you switch.

Reasons You Shouldn’t Refinance:

High Fees or Penalties: Some lenders charge prepayment penalties or fees for early loan termination.

Negative Equity: If your car’s value is less than what you owe, refinancing might not make financial sense.

Longer Loan Term: Extending the term may reduce payments but can increase the total interest paid over time.

Minimal Savings: If the savings from refinancing are negligible, it’s often not worth the effort.

Reasons You Might Consider Refinancing:

Change in Financial Situation: If your income has decreased or you’re facing unexpected expenses, refinancing could provide relief.

Add or Remove Co-Signer: If you want to add a co-signer for better rates or remove one to take sole responsibility, refinancing is a viable option.

Better Loan Features: You might find a loan with better features, such as bi-weekly payment options or no prepayment penalties.

Pros and Cons of Refinancing

Pros:

Lower Interest Rates: Potentially save hundreds or thousands over the life of the loan.

Reduced Monthly Payments: Free up cash for other expenses.

Flexible Terms: Tailor the loan to fit your financial situation.

Better Customer Service: Switch to a more accommodating lender.

Cons:

Prepayment Penalties: Check your current loan for early termination fees.

Longer Loan Term: You might pay more in total interest.

Negative Equity Risk: A longer term increases the risk of owing more than the car’s worth.

Impact on Credit: Applying for a new loan may cause a temporary dip in your credit score.

Lenders Offering Car Refinancing in Canada

Some lenders specialize in auto refinancing and may operate across Ontario and Canada. Consider these options:

LoanConnect - Offers refinancing with flexible terms and competitive rates.

Fairstone Financial - Great for those with less-than-perfect credit.

Dealerhop.com - Matches borrowers with lenders or dealerships offering refinancing.

CIBC Auto Financing - Refinancing options with detailed support.

RBC Auto Financing - Known for competitive rates and excellent customer service.

What to Watch Out For

Prepayment Penalties: Check your current loan agreement for penalties before refinancing.

Loan-to-Value Ratio: Ensure your car’s value supports refinancing.

Fees: Application fees, processing fees, and other hidden charges can offset potential savings.

Interest Rate Scams: Be cautious of deals that sound too good to be true.

Upselling: Watch for lenders who try to sell you unnecessary add-ons like extended warranties or insurance.

Tips and Tricks for Successful Refinancing

Shop Around: Compare offers from multiple lenders to find the best rates and terms.

Check Your Credit Score: A higher credit score can significantly lower your interest rate.

Use a Loan Calculator: Understand how refinancing affects your monthly payments and overall costs.

Know Your Car’s Value: Use tools like Kelley Blue Book or Canadian Black Book to determine your vehicle’s current market value.

Read the Fine Print: Carefully review loan terms for hidden fees or unfavorable conditions.

The Refinancing Process

Evaluate Your Current Loan: Gather details about your current loan, including interest rate, remaining term, and any penalties.

Check Your Credit Score: Request a free credit report to understand your eligibility.

Research Lenders: Compare rates, terms, and fees from multiple lenders.

Apply for Pre-Approval: Submit applications to lenders that offer pre-approval without a hard credit inquiry.

Choose the Best Option: Once approved, compare offers and select the best one.

Close the Deal: Sign the new loan agreement and use the funds to pay off your existing loan.

FAQs About Car Refinancing in Ontario

1. How soon can I refinance my car loan? You can refinance as early as a few months into your loan, but most lenders recommend waiting six months to establish payment history.

2. Does refinancing hurt my credit score? Refinancing may cause a temporary dip in your credit score due to the hard inquiry and new account opening.

3. Can I refinance if I have bad credit? Yes, but you may face higher interest rates. Consider lenders that specialize in bad credit loans.

4. Is refinancing worth it for a small interest rate decrease? Even a small rate reduction can lead to significant savings over time, especially on large loans.

Car refinancing in Ontario can be a smart financial move when done strategically. By understanding the reasons to refinance, evaluating the pros and cons, and being aware of potential pitfalls, you can make an informed decision that supports your financial goals.

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!