Vehicle refinance - refinance your car
Are the repayments for the shiny new vehicle you fell in love with two years ago starting to take a toll on your monthly budget? It happens to all of us! We purchase a vehicle with enough in our pockets to commit to a loan but a few months down the line, circumstances change and money suddenly becomes tight. The good news is that there is a solution – we’re talking “vehicle refinance”.
If you have high monthly instalments or are paying exorbitant interest rates, then taking out a new credit agreement might help you to keep some of your hard-earned cash and give you some leeway in your tight budget.
Here we will discuss what vehicle finance is, how it can benefit you, and what the qualifying requirements are to apply for a refinance loan successfully.
In This Guide:
- What is vehicle refinance?
- The benefits of vehicle refinancing
- An example of how beneficial refinancing a car can be
- When does refinancing a car loan make sense?
- Who qualifies for refinancing?
- The bottom line
What is vehicle refinance?
In very basic terms, when you refinance a vehicle, you replace your current loan by taking out another loan, i.e. the first loan is paid off by a second one. The new loan usually comes from a different lender and features new terms and conditions that are more suited to the applicant’s situation at the time.
From reducing monthly payments and interest rates to adjusting loan term lengths, the reasons for refinancing a vehicle can take multiple forms. Some individuals may have more personal reasons to refinance, such as removing a co-signer from a current loan, for instance.
The benefits of vehicle refinancing
People seek refinancing solutions for their car payments because, if done correctly, the new loan can come with many benefits. These benefits can include some or all of the following:
- If the new loan offers a lower interest rate, then you can use it to reduce your overall monthly instalment (and free up some valuable cash).
- You could also negotiate to keep the instalments the same but reduce the payment term so that you pay your car off quicker (and still save in the long run).
- Another option that many find favourable is to lower monthly instalments on a car by extending the new loan repayment period. This means that it will take longer to pay off your loan but it will also give you some room to “breathe” each month.
- Last, but not least, if you are currently sitting with an upside-down loan (where the value of the loan is greater than your vehicle’s value), then refinancing your car could correct this.
There are many different scenarios where applying for vehicle refinance could benefit a car owner significantly. If you are currently sitting with a loan that’s been taken out for your car, then it might be worth your while to source an obligation free refinancing quote to see how much you could be saving every month.
An example of how beneficial refinancing a car can be
To draw a picture and emphasise how advantageous automobile refinancing can be, we would like to offer the following example:
If you purchased a 2008 sportscar model that sold for R 200,000 and you had the intention of paying it off over 72 months, then according to a South African finance calculator, your monthly instalment would be R 4,650 with a 16% interest rate. If you refinance these payments with a new loan that has, say, a 12% interest rate, then your instalment could potentially be reduced to R 2,950 per month. This is an astonishing monthly saving of R 1,700.
When does refinancing a car loan make sense?
Apart from trying to save money to keep up with your bills every month, there are three other scenarios where applying for vehicle refinance makes logical senses:
- Interest rates have dropped since you took out your first loan. Interest rates fluctuate on a regular basis and there is always a possibility that the rates may have fallen since the first time you sourced quotes for a loan. Even a small 2-3% drop in interest could offer significant long-term savings.
- Your financial situation has improved. When a credit provider calculates a loan rate, they take a number of factors into account. They will consider your credit score, your debt-to-income ratio, and even your age and family status can be a determinant. Because these factors change over time, you could qualify for more favourable terms on your refinanced loan with your improved circumstances.
- You didn’t get the best offer the first time around. Perhaps the first time you were shopping for a loan you were in a rush or maybe you just weren’t aware that there were better options available. By taking some time to research other institutions, you might find that other lenders offer lower interest rates or perhaps they are not as strict with your credit record, etc.
Who qualifies for refinancing?
In South Africa, there are a few general requirements that need to be met before qualifying for a vehicle refinance. If one fails to meet these stipulations, then your application might not be successful (please keep in mind that these guidelines can differ between institutions):
- You need to be a South African Citizen
- The vehicle must not be older than a 2001 model
- The value of the car must be no less than R45,000
- The owner of the vehicle must have a valid South African driver’s licence
- The applicant must have a clear credit record
- The applicant must earn a net salary of at least R6,500 per month
- The vehicle has not been modified or stolen and recovered
The bottom line
Refinancing a vehicle can certainly save you money and if your circumstances are right, then it’s something that we encourage you to investigate further, at the very least. Just be aware of possible negative effects that could appear on your credit score if you are applying for car finance again and keep in mind that there could be additional finance fees too (these are questions that you can ask your new potential lender). Overall, the advantages far exceed any disadvantages.