Things To Avoid When Refinancing Your Car Loan
With living costs rising and household budgets getting tighter, many Australians are looking at ways they can save on costs.
Given that car loans are usually a big part of most Australians’ budgets, it’s important to find ways to get the best loan you can. If you’re looking to compare your options, here are some things you should try to avoid doing, when refinancing your current car loan:
Ignoring your credit score
One of the most common mistakes when refinancing a car loan is to ignore your credit score. Lenders base their rates on both the market conditions and the borrower’s credit history. A lower credit score may result in a higher rate on a new loan versus your existing one. Therefore, always check your credit score beforehand to know exactly where you stand, especially if you’ve had any issues paying bills or you’ve recently been applying for credit.
Overlooking break fees
Given most Aussie car loans are fixed, some lenders may impose fees for early loan repayments. Depending on your lender and the remaining term on your car loan, paying it off early to refinance may not be the best financial decision. Always check with your current lender if there are costs associated with early repayment before applying for a new loan.
Failing to compare
Getting the best deal on your new car loan requires a thorough comparison of all your options. The best place to start is talking to a finance broker who can compare your options and weigh them up with your financial situation and current goals.
Believing the advertised rate is the final rate
When comparing car loans, don’t take the advertised rate at face value, as this rate doesn’t account for fees and other costs. Instead, use the comparison rate – which includes both interest and fees – for a more accurate comparison of what you’re going to be getting. Bear in mind that the rate you receive may be higher than the comparison rate due to factors like your credit history and current financial circumstances.
Choosing a longer loan term
When refinancing, you can select the length of your new loan term. While a longer term may mean lower repayments, it often results in higher overall interest, making the loan costlier in the long run. It’s important to not just examine your weekly or monthly repayments, but also take a close look at how much interest you’ll be paying over the length of the loan.
Not considering loan features
When refinancing, don’t just focus on interest and fees –also consider the loan features. Think about your requirements for the loan, such as the flexibility to make extra repayments or pay off the loan early without penalties, and make sure your new loan has all the features that you need.