While COVID-19 has encouraged many Australians to get smart about money, many are overlooking the potential savings that could be unlocked through refinancing their car loan.
CarClarity CEO Zaheer Jappie told nestegg that car financing is often the second-largest purchase consumers make in their lifetime, but hesitation reigns when it comes to refinancing.
“Many consumers fear the word ‘refinancing’ because lenders aren’t putting customer transparency at the heart of the process, only considering their current status at the time of taking out the loan,” he said.
As a result, Mr Jappie said that many consumers fail to seriously consider refinancing as an option and miss out on the potential gains of doing so.
“Refinancing is a great option for car owners to consider if you do not believe you got the best rate when you purchased your vehicle, or if you’re looking to free up cash flow by lowering your monthly repayments,” he explained.
Refinancing a car loan can even leave you with a lower interest rate, which can translate into significant savings over the long term.
If you do choose to refinance your car loan, Mr Jappie said that there are several key things that savvy consumers will want to consider before doing so.
The first of these is to think about your objectives.
Most of the time, you can’t have it all, so it can pay to consider what matters most to you. Are you more concerned about refinancing your loan at the lowest possible interest rate, or does it make more sense to put downward pressure on your monthly repayments by extending the loan over a longer term?
“Identify what is most important to you and what your objectives are,” Mr Jappie said.
Another thing that’s worth paying attention to is exit fees. In some cases, these can make for a nasty surprise and take a bite out of any short-term savings that refinancing unlocks.
“Ensure you understand the exit requirements of your current loan, as it may include early exit fees or penalties which should be factored into consideration when comparing against a new loan,” Mr Jappie recommended.
The other big elephant when it comes to refinancing car loans is your credit score.
For the best outcomes and better rates, Mr Jappie said that you’ll need a track record of paying off any existing loans on time.
“This will help you qualify for more lenders and increase your chances of getting a better rate,” he said.
Article originally published on Nestegg on 27 September 2021