Refinancing a vehicle is something many people consider at some point during their finance term. But is it always the right move? The reality is that while refinancing can offer financial benefits in the right circumstances, it’s not always as simple—or as readily available—as it may seem.
What Is Vehicle Refinancing?
To refinance means taking out a new finance agreement to settle your existing vehicle finance—ideally with more favourable terms such as a lower interest rate, a longer payment period, or both. It can also be used to access additional funds, though this comes with its own challenges.
Why Banks Aren’t Always Keen
Most people are surprised to learn that banks are generally not enthusiastic about refinancing, especially if the motivation is to raise cash. What’s more, you’re usually not allowed to refinance with the same bank that issued the original finance—meaning you’ll need to approach a different institution altogether.
Banks also assess refinancing requests very carefully. If the vehicle is older or the current finance has already run for several years, they may be reluctant to offer new finance—particularly over a long term.
When Does It Make Sense to Refinance?
While refinancing isn’t always straightforward, there are several situations where it could make financial sense:
1. You Were Initially Offered a High Interest Rate
If your original vehicle finance came with a high interest rate, it might have been due to:
- A poor credit score at the time.
- High levels of exposure (e.g., too much existing credit).
If your credit profile has improved significantly since then, you may now qualify for a lower rate—potentially saving you money over the remaining term.
2. Interest Rates Have Dropped
Interest rates fluctuate over time. If you took out your finance during a period of high interest and rates have since fallen, refinancing your vehicle could reduce your monthly repayments or shorten your term without increasing your payment amount.
3. Your Balloon Payment Is Coming Due
Many vehicle finance agreements—especially when purchasing a brand-new vehicle—include a balloon payment, which is a large final amount owed at the end of the term. When this becomes due, some people choose to refinance the balloon rather than pay it off in one lump sum.
However, there are important limitations:
- Your financial situation might have changed since your original finance was approved.
- If the vehicle was already older than 10 years when initially financed, banks may be reluctant to refinance it again—especially over a long term.
- Your creditworthiness and income will also play a role in whether refinancing the balloon is a viable option.
4. You Bought a Vehicle in Cash and Want to Free Up Funds
Some individuals buy a car with cash—either to secure the vehicle quickly or due to temporary circumstances—and later decide to finance it in order to release capital. This kind of refinance can work, but not all banks support it, and the vehicle’s age and condition will still be taken into account.
5. Your Financial Circumstances Have Changed
Life doesn’t always go according to plan. You might have changed jobs, lost income, or taken on new expenses. If you find yourself struggling to afford your current monthly installment, refinancing could offer some breathing room—either by lowering your rate or extending the term to reduce the payment amount. This can help you keep your vehicle without falling behind or risking repossession.
Important Considerations
Before deciding to refinance, it’s crucial to weigh the potential benefits against the costs:
- Charges: There may be early settlement penalties on your current finance.
- Fees: There will most likely be initiation fees on the new agreement.
- Term Extensions: Lower payments can be attractive, but extending the finance term may increase the total amount of interest paid over time.
- Vehicle Age and Condition: Most banks won’t finance older vehicles or those with high mileage beyond a certain point.
In Summary
Refinancing your vehicle can be a smart financial move—but only under the right circumstances. If your credit score has improved, interest rates have dropped, your financial situation has changed, or you’re approaching a balloon payment, it may be worth exploring your options. However, vehicle age, finance term, and your financial profile all play a role in determining whether it’s viable.
Before making any decisions, speak to a trusted F&I consultant or Vehicle Finance Facilitator who can assess your situation and help you understand what’s possible.