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.
Let’s take a look at how refinancing a car loan can be beneficial for you.
Although there are plenty of benefits to car loan refinancing, it does have its fair share of disadvantages too.
The following are some of the reasons many people opt for refinancing:
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.