4 reasons to consider refinancing your car loan during social distancing

If money troubles are at the forefront of your mind right now, you might be tossing up ways to reduce ongoing costs. One option could be to refinance your car loan. If it’s been a while since you got it, you could be missing out on a more competitive deal, plus thanks to the rise in online and non-bank lenders there are now more and more low interest car loans available.

Still need some convincing? Here are a few reasons to consider refinancing your car loan:

To find a lower interest rate 

Depending on how low your current car loan interest rate is, you might be able to find a more competitive rate if you choose to refinance. 

Car loan interest rates range widely from over 10% p.a. to under 5% p.a. In fact, at 6.88% p.a., the average new car loan interest rate is more than 2% higher than the most competitive car loan rate in the Mozo database^: the loans.com.au’s New Car Loan at 4.67% p.a. (5.22% p.a. comparison rate*).

So let’s just say you were two years into a $30,000 five year car loan. With the average rate of 6.88% p.a., over the full five year loan term you would pay around $5,540 worth of interest. Now assuming you had paid off about a third already, if you were to then refinance to a three year loan term with a rate of 4.67% p.a., you would pay around $1,415 worth of interest on the remaining balance. This would reduce your total interest payments over the course of the full five years from $5,540 to $4,125.

To reduce your monthly repayments 

By lowering your annual interest rate, you could also reduce your monthly repayments. So going back to the $30,000, five year loan term example above, with the 6.88% p.a. rate your monthly repayments would be around $592. At this rate of repayment you should have made around $14,208 in principal and interest payments already ($592 x 24 months), leaving an outstanding balance of $19,218. If you were to then refinance that remaining balance with the lower rate of 4.67% p.a., your monthly repayments would drop to $573, leaving an extra $19 in your pocket each month!

Check out Mozo’s personal loan comparison calculator to figure out how much you might be able to save on interest and monthly repayments by switching.

If your credit score has improved, you might be eligible for a more competitive rate 

Of course another factor that decides how low or high an interest rate you get is your credit score. If your credit history wasn’t looking too healthy a few years ago when you first took out the loan, you might not have been able to benefit from the most competitive rate on the market. But if you have been diligent in your repayments since then and you haven’t had any other financial issues that would negatively impact your rating, your score may just have gone up.

You should be able to access a free copy of your credit report once every 12 months through any of the major credit reporting bodies in Australia.

You can refinance your car loan online

It’s anybody’s guess as to how long social distancing will be in place for, so with that in mind you’ll be happy to know that you can refinance your loan from the comfort of your sofa. 

That’s right, with more and more car loan lenders operating fully online now, you can both find and apply for a refinance car loan online.

Make sure the savings outweigh the costs

Considering the main reason to refinance is to save you money both in the short and long term, before you switch to another loan you’ll want to make sure that the amount you save will outweigh the cost of refinancing.

Costs of refinancing could include:

  • A break free to exit your current car loan.
  • A sign-up fee for whatever car loan you decide to switch to.
  • A high annual fee on the loan you’re thinking of refinancing to.

Other factors you may want to think about are:

  • How long you have left on your current loan. If you have say less than 12 months to go until your car is fully paid off, refinancing might not be worth it.
  • How your credit score will be affected. If you’re thinking about applying for another personal loan to finance other expenses in your life, you might want to think about how switching your car loan could affect your credit score. 
  • If your car has depreciated in value, you might not be able to refinance.

Keen to find a car loan to switch to? Head to our refinance car loans hub page to see what competitive car loan interest rates are on offer right now, or check out the deals below.

Compare refinance car loans

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 89 car loans.
Last updated 21 July 2024 Important disclosures and comparison rate warning*
  • Used Car Loan

    Fixed, Secured, No vehicle age limit

    Interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 18.99% p.a.
    7.19% p.a.to 21.78% p.a.based on $30,000
    over 5 years

    Get a competitive fixed interest rate on a secured used car loan of up to $75,000 depending on your credit score. No vehicle age limits. Easy online application. Fast pre-approval. Pre-approved funds held for up to 3 months. No monthly account keeping fees, no exit fees and no early repayment fees. Flexible weekly, fortnightly or monthly repayments on terms from 1 to 7 years.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.

    Compare
    Details
  • Better Car Loan Special Offer

    Fixed, Secured

    Interest rate
    comparison rate
    Monthly repayment
    6.24% p.a.
    6.65% p.a.based on $30,000
    over 5 years

    Get a fixed rate car loan for amounts over $20,000 with Police Credit Union. Make additional repayments at any time without penalty. Free online redraw. Available for new and used cars. Can also be used for motorcycles, boats, caravans, trailers or any registrable vehicle.

    Repayment terms from 1 year to 5 years. Representative example: a 5 year $30,000 loan at 6.24% would cost $35,295.27 including fees.

    Compare
    Details
  • New Car Loan

    Fixed, Secured

    Interest rate
    comparison rate
    Monthly repayment
    6.57% p.a.to 18.99% p.a.
    7.19% p.a.to 21.78% p.a.based on $30,000
    over 5 years

    Get a competitive fixed interest rate on a secured new car loan of up to $75,000 depending on your credit score. Easy online application. Fast pre-approval. Pre-approved funds held for up to 3 months. No monthly account keeping fees, no exit fees and no early repayment fees. Flexible weekly, fortnightly or monthly repayments on terms from 1 to 7 years.

    Repayment terms from 1 year to 7 years. Representative example: a 5 year $30,000 loan at 6.57% would cost $35,528.12 including fees.

    Compare
    Details


^Average interest rates and calculations based on car loans available in the Mozo database, correct as of 25th March, 2020.

* WARNING: The Comparison Rate combines the lender's interest rate, fees and charges into a single rate to show the true cost of a personal loan. The comparison rates displayed are calculated based on a loan of $30,000 for a term of 5 years or a loan of $10,000 for a term of 3 years as indicated, based on monthly principal and interest repayments, on a secured basis for secured loans and an unsecured basis for unsecured loans. This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

^See information about the Mozo Experts Choice Personal Loan Awards

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.