How to Refinance a Car Loan in Australia
Thinking of refinancing your car loan? Here is how to do it step by step, what it really costs, the balloon and car-age rules, and when it is actually worth it.
By Timothy Hirou GaschereauPublished 10 min read
Try it yourself
Refinancing a car loan means taking out a new loan to pay off your existing one, ideally at a lower rate or on better terms. Done right, it saves you real money. Done carelessly, it can quietly cost you more than staying put, usually because of one trap we will get to.
Here is exactly how to refinance a car loan in Australia, what it actually costs, and how to tell if it is worth it.
🎯 The essential: Refinancing replaces your current car loan with a new one, usually from a different lender, to lower your rate, cut repayments, or change the structure. It is not always a saving: exit fees, a longer term, or a lower credit score can wipe out the benefit. Always compare the total cost of the new loan (interest plus all fees) against staying put, not just the monthly repayment. Check the payout figure, exit fees, the car's value and age, and your credit score before applying anywhere. This is general information, not personal advice.
What refinancing a car loan means
When you refinance, a new lender pays out your old loan in full and you repay the new lender under new terms: a new rate, a new term, and possibly new fees. You are not renegotiating with your existing lender, though it is always worth ringing them first to ask if they will match a better rate you have found. If the new loan is secured, the car stays as security, so the new lender can repossess it if you default, just like the old one.
Reasons to refinance, and honest reasons not to
| Good reasons | Watch out for |
|---|---|
| A meaningfully lower interest rate | Stretching the term just to cut the monthly repayment |
| Lower repayments (with eyes open) | The car is worth less than your payout (negative equity) |
| Removing or adding a co-borrower | Break or exit fees cancelling out the saving |
| Escaping expensive dealer finance | A credit score that has dropped since the original loan |
| Refinancing a balloon into a standard loan | A car too old for lenders to accept as security |
Negative equity is a real barrier: if you owe $20,000 on a car now worth $14,000, most lenders will not refinance because the security does not cover the debt. And if you are comparing car finance more broadly, see novated lease vs car loan and personal loan vs credit card.
How to refinance, step by step
- Get your payout figure. The exact amount to close the loan today, not the statement balance, which may exclude accrued interest.
- Check exit or break fees. Fixed-rate loans can carry hefty break costs; variable loans usually a small discharge fee. Get it in writing.
- Check the car's market value (RedBook or Carsales). Lenders typically lend up to 80 to 100% of current value.
- Check your credit score for free (Equifax, Experian, illion). It directly drives the rate you are offered.
- Compare lenders on comparison rates and get pre-approval (ask whether it uses a soft or hard inquiry).
- Apply, and let the new lender pay out the old loan. Then confirm in writing the old loan is fully closed, and check your credit file after about 30 days.
The real costs to weigh
Refinancing is not free. Add up:
- Exit or break fees on the old loan (hundreds of dollars on a fixed loan).
- Establishment fee on the new loan, typically $150 to $500.
- Ongoing monthly fees: even $10 a month is $600 over a five-year loan.
- The term trap: a lower rate over a longer term can cost more total interest than staying put.
Work out your break-even: total cost of switching (new-loan interest + establishment fee + old-loan exit fee + ongoing fees) versus total cost of staying. If switching is lower, it saves money. If not, it does not, no matter how good the monthly repayment looks.
The term trap, in numbers
Say you owe $18,000 at 9.5% with three years left, roughly $20,736 to pay in total. Refinancing to 6.5% can help, or hurt, depending entirely on the term:
The five-year version has the lowest monthly repayment (about $351 vs $561), which is exactly why it is tempting, and exactly why it is the trap. You are paying interest for two extra years on a depreciating asset. Always compare the total cost of the loan, not the monthly repayment. ASIC's Moneysmart loan calculator makes the comparison easy.
Balloon payments
Some car loans and novated leases include a balloon payment, a large lump sum due at the end, commonly 20 to 40% of the car's original value. When it falls due you can pay it in cash, sell the car to cover it, or refinance the balloon into a new loan. Refinancing a balloon is common and legitimate, but check the car's current value first: if the balloon is higher than the car is now worth, you hit negative equity, and the new lender will assess the car's age and condition before agreeing.
Car age, secured vs unsecured, and your credit score
A secured car loan uses the car as security and carries a lower rate, but the lender can repossess on default. An unsecured personal loan needs no security and cannot cost you the car directly, but the rate is higher. Car age matters: most lenders cap the car's age at loan end (often 10 to 15 years), so an older car may only qualify for an unsecured loan. Check the age policy before applying to avoid a wasted hard inquiry.
Your credit score drives the rate. If it has improved since your original loan, refinancing may unlock a real saving; if it has dropped, you may be offered a worse rate and should not bother. Avoid multiple formal applications in a short period, since each hard inquiry can nudge your score down.
Frequently asked questions
Can I refinance a car loan in Australia?
+
Yes, it is a standard product. Most banks, credit unions and non-bank lenders offer car loan refinancing: you apply for a new loan, the new lender pays out your old one, and you repay the new lender under new terms. Eligibility depends on your credit score, income, the car's value, and the car's age.
How much does it cost to refinance a car loan?
+
Typically an exit or discharge fee on your old loan (often $100 to $400 for variable-rate loans, more for fixed-rate loans with break costs) plus an establishment fee on the new loan (about $150 to $500), and sometimes ongoing monthly fees. Add up every cost and compare the total against staying put.
Will refinancing my car loan hurt my credit score?
+
A formal application triggers a hard credit inquiry, which can cause a small, temporary dip. Multiple formal applications in a short window have a bigger cumulative effect. Use pre-approval or rate quotes that rely on soft inquiries before you commit to a formal application.
Can I refinance a car loan with bad credit?
+
It is possible but harder. A lower score usually means a higher rate offer, which can make refinancing pointless. Some lenders specialise in impaired credit, but their rates reflect the risk. Check your score first and work out whether the likely rate actually saves you money.
Can I refinance a balloon payment on a car loan?
+
Yes, rolling a balloon into a new loan is common and legitimate. The new lender assesses the car's current value and condition first. If the balloon is higher than the car is now worth, you may hit a negative-equity problem that complicates refinancing.
How old can a car be to refinance?
+
Most lenders set a maximum car age at the end of the loan term, commonly 10 to 15 years. If your car would be older than that at loan end, some lenders will not accept it as security, and you may only qualify for an unsecured personal loan at a higher rate. Check the lender's car-age policy before applying.
Is it worth refinancing my car loan?
+
It depends on your numbers. It is worth it if the total cost of the new loan (interest plus all fees) is less than the total cost of staying on your current loan for the remaining term. It is not worth it if exit fees are high, your score has dropped, or you are stretching the term just to lower the monthly repayment.
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
- ASIC Moneysmart, car loans
- ASIC Moneysmart, personal loan calculator
- ASIC Moneysmart, debt consolidation and refinancing
- ASIC Moneysmart, credit scores and credit reports
General information only, not personal financial advice. It does not take your circumstances into account. Consider a licensed financial adviser or a free financial counsellor before acting, and run your own numbers.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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