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Your guide to refinancing your car loan

Written by

Shaun McGowan

There are so many great reasons to refinance.

Perhaps you want to pay less, extend your loan term or refinance a residual (balloon) payment.

How does it work?

To refinance your car loan, it’s pretty much the same process you went through when you got your loan originally.

Typically you’ll be refinancing with a different lender.

Once approved, they’ll simply request a payout letter from your current lender, pay them out and you keep on going!

Then you’ll continue to make regular repayments on the new loan you own the car outright!


To find the best offers, it’s worth spending some time comparing available deals from multiple lenders. You can do that simply by taking our quiz.

Before we look at the how and when of refinancing, let’s cover off some basics.


Can I refinance a car loan with a new lender?

Yes. You can choose to refinance your car loan with another lender.

Better still, speak with your current lender before applying with another and they may be able to offer you a better deal.

After all, interest rates have come down a lot.

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How soon can you refinance a car loan?

In general, you’ll need to wait 12 months before refinancing a car loan.

If you’re paying a higher interest rate because you had a paid default or the likes on your credit file.

After 12 months of making your payments on time, you should be able to get a much better interest rate with a new lender.

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Is refinancing a car loan expensive?

It shouldn’t be! The point of refinancing is to reduce and lower your payments.

It has the potential to save you thousands by reducing the amount of interest you are required to pay, you just need to make sure you’re finding the best offers.

However, you will need to look at your existing loan and check if there are any fees for paying the loan out early, otherwise it may not be worth it.

Fees can include early-repayment fees, exit fees on your existing loan, but also include application fees for your new loan. Try to find a loan with no fees for the best deal.

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Can I refinance a bad credit car loan?

Of course! Plenty of people refinance a bad credit car loan to negotiate a lower rate.

If you’ve made consistent payments for more than 12 months of your existing loan, you’ll have improved your credit rating and refinance to a lower rate.

Carefully research your options before applying, as declined applications usually affect your credit score. Don’t undo all the hard work you’ve done to now by rushing into things!

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Why you should consider refinancing

Now that we’ve covered the basics, let’s cover some of the main reasons for refinancing.

While the most common reason may be simply to secure a lower interest rate, you can also refinance if you want to:

  • Receive a better rate on a bad credit car loan
  • Reduce regular repayments
  • Refinance a balloon or residual payment
  • Reduce the total cost of your loan
  • Extend the terms

We’ll look at the top three reasons in detail below.

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Top 3 reasons to refinance

1. Refinance your car loan with a better credit score

If you apply for a bad credit car loan, you will most likely be paying much higher rates.

If you have met all your repayments for at least 12 months, your credit score should have improved and you should qualify for a lower interest rate by refinancing with a new lender.

  • Request a copy of your credit score to see how your repayments have improved your credit rating
  • Ensure you have made full and on-time repayments throughout the history of the existing loan
  • Compare lenders to find the best rate for your improved credit score
How your credit history affects your loan options with Money Matchmaker

2. Refinancing a car loan to reduce repayments

There are a few ways to reduce repayments through car loan refinance.

The most popular way is to negotiate lower interest rates on your new loan.

This will reduce both the regular repayment amount and the total interest paid over the term.

You can also reduce repayments by extending your loan term, but this may end up costing you more in interest.

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3. Refinance your car loan balloon payment

Car loans can often include a balloon payment. This is a one-time payment at the very end of your loan, which will reduce your regular repayment amounts up to that point.

Sometimes, you might not be able to repay the balloon amount in full and need to finance it. This is pretty standard.

Car loan balloon payments

5 steps to refinance your car loan

Ready to refinance? Here’s how you can do it.

  • Consider your optionsCompare car loans to ensure you meet eligibility criteria and understand the rates, terms, and any initial or ongoing fees associated with your new loan.
  • Calculate your car loan repayments — Use a car loan calculator to estimate repayments and find the most suitable payment schedule and amount for you.
  • Make an application — Just like you did originally, except this time with a new loan, new lender, and a better deal.
  • Repay your existing car loan — Once you’ve approved, your new lender will repay the old loan amount.
  • Repay your new car loan — Now that your old balance is settled, you can enjoy making regular repayments on your new, better loan.

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About the Author

Shaun McGowan from



Shaun McGowan

Shaun is the founder of and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded and Lend.

*Information about comparison rates Comparison rates are designed to allow borrowers to understand the true cost of a loan by taking into account fees and charges, the loan amount and the term of the loan. The comparison rate is based on an unsecured fixed rate personal loan of $30,000 over 5 years. WARNING: Comparison rates are true only for the examples provided and may not include all fees and charges. Different terms, fees or loan amounts might result in a different comparison rate.