It’s pretty easy to understand why car loans are so useful. Splitting the upfront cost of a major purchase into smaller payments makes it that much easier to get a car.
Car loans include both interest and principal in the total amount you need to pay back. Nearly every loan includes some interest. This makes the loan worthwhile to the lender by addressing the potential risk of issuing a loan.
The presence of interest in car loans is a given. Exactly how much you have to pay isn’t set in stone, however. If you choose to refinance a car loan, you could cut down on the total amount of interest owed. In the right circumstances, that puts money back in your pocket.
Can you refinance a car loan in Canada? Yes! Many car owners can find options to refinance their loans.
What’s important is finding car refinancing that works for you. You also need to check that the process makes sense in the big picture for your finances.
Let’s take a closer look at car refinancing, including what it is, how the process works, and potential benefits.
What is Car Loan Refinancing in Canada
Loan refinancing is the process of using a new loan to pay off an existing loan. When you request refinancing, the lender will review your credit history. For car loans, they’ll also look into the eligibility of your vehicle.
The original loan is closed out and payments start for the new loan. The basic idea is the same whether you want to refinance an auto loan, home loan, or other type of loan.
When Do You Refinance Your Car Loan
Refinancing can include prepayment penalties and other added costs. It’s crucial to do the math to ensure refinancing is worth it. If your goal is to save money, make sure the penalties don’t add up to more than the interest savings.
That said, there are a few distinct reasons why refinancing can make sense, including:
When You Want to Reduce Costs
While it’s not guaranteed, it’s possible to find a better interest rate through refinancing a car loan. That means lower costs overall. If your credit score has improved since you took out your loan, lenders might offer you a better rate.
The price of new and used cars is increasing significantly, according to CTV Toronto. That can make saving on a car loan especially important.
When You Want to Adjust the Terms or Conditions of Your Loan
You can potentially extend or shorten your loan term — in other words, how long it lasts — by refinancing.
A longer term means lower monthly payments overall, although it does increase the total cost of interest. A shorter term helps you pay off your car loan more quickly and potentially save on interest.
Refinancing can also help you adjust other conditions of your loan. You could remove a co-signer who’s no longer needed, for example.
When You Want to Change Lenders
If you want to switch lenders for your car loan, refinancing can make it happen. Do you want to move your car loan from a bank or other lender to a credit union? We can help.
How Do You Refinance a Car Loan in Canada?
Refinancing a car loan starts with a personal decision about whether adjusting your car loan is worth it. Is it really time to refinance your car?
Be sure to look at the specifics of your loan. That includes the interest rate, amount of time left, prepayment penalties, and other costs. Note these specifics so you can more easily compare car loan refinance offers to your current arrangement.
Keep the goal of refinancing in mind, too. If you want to lower your monthly payment, for example, you’ll end up paying more in the long run. However, do those new loan payments give you some valuable relief in your monthly budget? If so, the higher total may be worth it.
If you decide it’s a good idea to refinance your car loan, you can start applying for new loans. When you receive pre-approval offers, it’s time to compare the new potential loans to your current one.
Remember, you can choose to work with a new lender or stay with your current one. Either way, your refinanced car loan will pay off your current one. Then, you’ll start making payments on the new loan.