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Refinancing a Car Loan in Malaysia

car refinance in Malaysia

Car refinancing is the process of replacing your existing car loan with a new loan of different terms. There can be a number of reasons why you would want to opt to refinance your car loan.

While the most important reason for car loan refinancing is to save money, you could also reduce your monthly payments, get a lower interest rate, or a more flexible repayment period. No matter what your reason for refinancing is, it’s highly important that you start off by finding the right lender.

Car Refinancing - The Pros and Cons of Refinancing Your Loan

Let’s take a look at how refinancing a car loan can be beneficial for you.

  • Consolidate your car loan-related liabilities into one loan.
  • Take advantage of a lower interest rate.
  • Get an increased or reduced tenure for your loan.
  • Change your lender if you’re unhappy with them for one reason or another.
  • Enjoy additional cash flow to deal with other financial commitments.
  • Add or remove co-applicants on your car loan.

Although there are plenty of benefits to car loan refinancing, it does have its fair share of disadvantages too.

  • End up paying more interest over the entire loan duration in case of tenure extensions.
  • Get high interest rates because of the age of your car, the loan amount, or the lender itself.

Why Refinance a Car Loan

The following are some of the reasons many people opt for refinancing:

To Consolidate Car Debts into One Loan

Refinancing helps you to review your existing debt and combine them into a single liability. So, instead of making different monthly payments, you just make a single repayment.

Better Car Loan/Financing Schemes

It could be that you have chosen your existing car loan at a higher rate of interest due to emergency, bad credit, or poor research. If you come across a car loan being offered at a better rate of interest, you can approach the lender for refinancing. This could lower the interest rate of your existing loan as well.

To Change Your Car Loan Tenure

Those who have other financial commitments and want to increase the duration of their car loan opt for refinancing. On the other hand, if you have a healthy credit score and you want to pay off your loan faster, you can opt for refinancing at a shorted tenure.

To Decrease Your Monthly Repayments

When you opt for refinancing, you can use the extra amount for other purposes. It could anything from using the amount for emergencies or to create a savings fund. This reduces your monthly payments and increases your cash flow.

To Buy the Car You Have Leased

Some car lease service providers offer customers the option to buy the car when the lease period ends. If you want to buy the car you can refinance your existing loan and shorten the loan tenure.

How You Can Refinance a Car Loan

Find a Suitable Loan Scheme

By doing an extensive research, you will be able to find out the various car financing schemes offered by various banks in Malaysia. You can shortlist various lenders and use a car loan calculator to find out how much monthly instalment you will have to pay.

Check Your Credit Score Regularly

Your credit score reflects your financial well-being. Ensure that you are eligible to apply for the car loan scheme you are applying. Make sure you don’t approach many banks for refinancing. This is because every enquiry you make at a bank for any financial products will be recorded on your credit report.

Check the Scheme’s Fees and Charges

When you apply for most car loans, you are asked to pay registration fees, processing fees, stamp duties, and insurance/takaful. But there could be hidden fees and charges as well. Go through the financing product and check with a bank’s representatives what all fees and charges are required for the loan.

Read the Fine Print of the Loan Scheme

Every loan comes with different terms and conditions. Whether you are applying for a loan from the same bank or another bank, it is advisable to go through the loan scheme’s fine print. You will get to know the margin of finance, rate of interest, the loan tenure, and everything else you need to know.

Ensure Your Paperwork is in Place

Go through all paperwork related to your existing car loan and verify all the important details, such as the loan amount, interest rate, and monthly repayments. This will help you take a call on whether you should apply for a new loan and if it’s worth the time and effort being put in.

Organise all Important Loan-Related Paperwork

A major part of applying for car loan refinancing is completing your loan application correctly. For starters, collect all documents related to your existing car loan along with your personal information. In addition, keep all your vehicle-related paperwork and important information, including, its make, model, age, and present mileage details handy at the time of application.

After all this is done, don’t forget to initiate the closing of your current loan. Generally, your new lender will do it on your behalf by imposing charges like processing fees and re-registration fees. However, you should ensure that the previous loan is closed by the new lender.

Things to Consider Before Refinancing a Car Loan

  • Read the offer documents carefully while signing up for a refinancing plan. Look out for hidden finance charges and other costs. In addition, consider the margin of financing that you’re getting on the latest offer and see if it fits your financial needs.
  • While some banks offer 100% margin of financing, other banks offer up to 85% or 90% of the car’s market price. Keep in mind to read the fine print thoroughly for other terms and conditions related to the scheme.
  • Review your existing loan-related paperwork and check if there’s any prepayment penalty clause for your plan. Now, see how the penalty amount can affect your financial position and if refinancing is worth it in case there’s a hefty early payment penalty.
  • Refinancing may help you in increasing your loan tenure but you also need to consider the fact that by extending the repayment period, you’ll be paying interest for a longer time. After refinancing, even if the applicable interest rate is reduced and your monthly cash flow is more, an extended tenure means extended liabilities.
  • If you have a low credit score, you can still get your car loan refinanced by presenting a guarantor.

Conclusion

Take advantage of the benefits of refinancing a car loan. However, you need to remember that by refinancing, even if the interest rate has reduced, the total interest you have paid for the existing loan and financing is much more. So, do your research on car loans and refinancing, and decide accordingly.

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