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How to Refinance a Car Loan

Filed under Information Centre

If you want to stop paying for a high-interest car loan, you can get a car refinancing.

You may have likely taken out your active loan a few years ago when you had a low credit score and had to agree to a high-interest rate or use a co-signer to get approved. However, as you diligently make repayments, pay your bills on time, use your credit card sparingly, and generally just become responsible with your finance, your credit score has also improved.

Your new credit rating qualifies you for many vehicle financing offers with low interest rates and better loan terms.

Car Refinancing

To end your active car loan and get a new one with better terms, car refinancing is the way to go. In a nutshell, it means replacing your current car loan with a new one. Your new car loan, usually granted by a new lender, will be used to pay off the existing car loan.

In turn, you will have an all-new auto loan agreement with a new APR and loan term. Most of the time, this move will give you better terms and rates that work well with your current financial needs and long-term plans.

Use these five steps as a guide:

1. Assess if refinancing is beneficial for you

While refinancing can offer many benefits, it’s not a one-size-fits-all solution. Before going too far into the process, focus on these important considerations:

  • Loan Balance
    If the outstanding loan amount is higher than the car’s market value (referred to as being upside down on a loan), you may have trouble getting approved for a new loan or see little difference in the new loan terms offered to you. Some lenders may allow you to roll the outstanding balance on your current loan into your new loan, but keep in mind that this will add to your overall debt.
  • Prepayment Penalty
    Most car lenders charge borrowers for paying off their car loan earlier than the agreed term because they will no longer make money on the interest.
  • Fees
    You may need to pay to re-register the vehicle and transfer the title after refinancing.
  • Car Age and Mileage
    Some lenders don’t allow refinancing for cars over eight years old or with more than 100,000 miles on the car.
  • Credit Score
    If your credit has improved, refinancing could result in a lower interest rate, which could save you money in interest over the life of the loan.

2. Prepare the documents

If you decide to move forward with a refinance, you’ll need to gather some documents and information before you can start the process.

Here’s some of the information you may need to have on hand:

  • Personal Information
    This usually includes your name, address, occupation, Social Security number, previous addresses, and how much you pay in the monthly mortgage or rent payments.
  • Proof Income
    Your paycheck stub, tax return, and employment history help lenders assess your financial capacity for repayments.
  • Auto Insurance
    An insurance card or other insurance documents can prove that your vehicle is insured.
  • Current Loan Information
    Knowing the balance on your current auto loan, as well as your interest rate and term, helps you better compare car refinancing offers.
  • Car Information
    This includes the car’s make, model, mileage, and manufacturing year. The vehicle identification number, or VIN, is usually found in the driver’s side lower corner of the windshield.

Car Loan Quotes

3. Get pre-qualified

Take some time to shop around and see which offers you may qualify for. Applying for pre-qualification can be a good place to start. To get pre-qualified, the lender will look at certain information, like your credit and type of vehicle. Pre-qualification is typically considered a soft inquiry, which won’t hurt your credit all on its own.

A prequalification is not a guarantee of approval. If you decide to apply for the loan, you’ll ultimately have to apply for it and face the hard inquiry that goes along with it.

To get a pre-approval, check around with several lenders and compare the interest rates, loan terms and total cost of borrowing available to you. Find out if any of the loans qualify for an autopay discount. Opting in to this feature may lower your interest rate and help ensure you don’t forget a payment — a win-win for you.

By doing your research, you can be more confident that when you choose a loan you’re selecting the best offer available to you.

Pro Tip:

You may be tempted to choose an offer with a longer loan term, which could result in a lower monthly payment. But keep in mind you’ll end up paying more in interest and increase your risk of becoming upside down. Above all, consider the main reason you want to refinance and whether each loan’s terms address that need.

4. Apply for an auto refinance loan

After shopping around for the best car refinancing deals, it’s time to apply for an auto refinancing program that works best for you.

Apply for car refinancing with your chosen lender. Whether you’re completing the car refinancing application manually or through the Internet, having your much-needed documents in hand is a time-saver and stress-reliever.

Do not also forget to get a copy of your car refinancing agreement from your lender, which details all the terms of your new loan. This document will include details about your APR, monthly repayment amount, repayment due, and all other conditions of your new car loan.

Remember that this process will be counted as a hard inquiry on your credit history, which can negatively affect your credit scores. Make sure that you’re dealing with the right one before affixing your signature on the contract.

5. Pay off your existing car loan, Make repayments on the new one

With car refinancing, it’s out with the old, in with the new. Generally, your new car loan lender pays off your old loan and then you start making repayments to them. Make sure that your old car loan has been paid in full before signing on to any car refinancing contract. You can reach out to your previous lender to get a confirmation. The last thing you’d want is to get a new car while defaulting on the old one.

Once you’re sure your active loan has been completed, starting making on-time payments on the new one diligently. Slowly but surely, your new car loan will be paid off in full and your credit rating will improve.


Refinancing can help you get an auto loan that best fits your needs. Take the time to do your research, compare car loan refinancing rates, and estimate how much you'll be making in repayments to get better the best deals.


Do you need help with car loan refinancing? Talk to our Car Loan Specialist on 1300 722 210.

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