What is Car Refinance?

Car refinancing involves taking out a new finance agreement to settle the remaining balance of your current loan under revised terms. This option becomes particularly beneficial when your financial situation has undergone changes since your initial loan application. In this article, we will explore the possibility of refinancing your car and explain the reasons that may prompt you to consider car refinance.

What are the benefits of refinancing?

When you initially entered into a car loan, you agreed upon the monthly payments specified in the contract. However, circumstances may have changed, and the current interest rate might be straining your budget. Refinancing your loan, on the other hand, could potentially enable you to secure a lower rate and therefore reduce your monthly payments. 

It is also possible that your credit score has improved since the time you obtained the car loan, opening up opportunities for offers with more favourable interest rates.

While there are certain factors to contemplate when refinancing a car loan, there are also notable benefits to consider:



Are there any issues with refinancing?


How do I Refinance my car?

Once you have carefully considered the advantages and disadvantages and made the decision to proceed, you can initiate the process of refinancing your car loan.

What happens if I stop making my payments?

When you decide to refinance your car, it is crucial to maintain regular payments of your loan. The repercussions of not meeting your car finance loan obligations will vary depending on the stage of your agreement and the type of loan you have.

According to the Consumer Credit Act, a lender cannot repossess your vehicle if you have paid more than one-third of the total amount payable unless they obtain a court order.

If you have surpassed this threshold with your current lender, it is important to note that by entering into a new agreement through refinancing, you will lose this protection until you have paid one-third of the new agreement.

Additionally, once you have paid 50% of the total amount payable, you have the right to voluntarily terminate the agreement. This means you can inform your lender of your intention to terminate the agreement, return the car, and have no further financial obligations.

However, when starting a new agreement through refinancing, you will not have the option to voluntarily terminate until you have paid 50% of the total amount payable.

If you find yourself unable to make repayments on your new agreement, it is essential to contact your lender as soon as possible. Lenders are typically willing to work with borrowers to find a suitable solution.

Nevertheless, it is crucial to fully understand any protections you may lose under your current agreement before proceeding with refinancing. Stay informed and be proactive in addressing any financial difficulties that may arise.


Does refinancing a car loan affect your credit rating?

Whenever you apply for a type of finance, your credit score is likely to take an initial hit and may drop. As you start to pay back your loan, this can actually help you improve your credit score.

Any type of on-time finance repayment can help build a positive credit history, so you’ll still be doing this if you’re paying your current finance on time without refinancing.

You might find that your credit score drops after you’ve applied to refinance a car loan, but it’s likely your credit score will build back up if you keep on top of your payments.