When refinancing makes sense
Refinancing means replacing your car loan with a new one, ideally at a lower rate. The new lender pays off the old loan, and you make payments to the new one. It's worth a look when:
- Your credit has improved. If you bought with bad credit and have made a year or more of on-time payments, you may now qualify for a much better rate.
- Rates have dropped since you signed.
- Your payment is too high and you need breathing room, even if it means a longer term.
- You were sold extras you didn't want, and refinancing is a chance to stop paying interest on them.
What it can save
Here's what a lower rate does on a $20,000 balance with 48 months left:
| Rate | Payment | Interest over 48 months |
|---|---|---|
| Staying at 19.99% | about $609 a month | about $9,200 |
| Refinanced to 11.99% | about $527 a month | about $5,300 |
| Refinanced to 7.99% | about $488 a month | about $3,400 |
Real savings depend on your rate offer and any fees. Try your own numbers on the car loan calculator.
Is there a penalty to pay off my current loan?
In Saskatchewan, you can pay off a consumer loan early without a penalty, so moving your loan usually costs nothing on the old lender's side. Ask your current lender for a payout statement, which shows the exact amount needed to close the loan on a given date.
What lenders look at
- Your payment history on the current loan. A clean year or more is the strongest thing you can bring.
- Your credit score now, compared with when you bought.
- The vehicle's value next to what you owe. If you owe much more than it's worth, some lenders won't refinance until the gap shrinks.
- The vehicle's age and kilometres. Many lenders have limits for older, high-kilometre vehicles.
- Your income and other debts, the same as any loan.
If you owe more than the car is worth
This is common in the first years of a long loan, especially if an old loan was rolled into the new one when you traded in. Options include paying down the balance before refinancing, waiting a few more months, or refinancing for the same term rather than a longer one so the gap doesn't grow. What you shouldn't do is roll the shortfall into another vehicle without seeing the total cost.
How Brenden helps
Send your current lender, balance, rate and months left. Brenden checks whether a lender is likely to beat it and gives you an estimate of the saving, after any fees, before anything is applied for. The lender's offer sets the real number. If refinancing doesn't save you money, he'll say so.