Australians bought a record number of new cars in 2025, favouring SUVs and utes while showing a strong appetite for hybrids. EV sales also grew, and while Toyota led the field and Ford Ranger was the best seller, BYD and other Chinese brands are rising fast.
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How to refinance your car loan: when and how to do it
Thinking about refinancing your car loan? Here’s when refinancing can make sense and how to work out whether it’s worth it.
Whether it's your personal financial circumstances or the wider economy, there might come a time when you need to refinance your car loan. What made sense when you signed up for your current loan may simply not make sense now, or the circumstances might have opened an opportunity to refinance and reduce your repayments and overall costs.
Here's when and how to refinance a car loan in Australia.
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What refinancing means and when it makes sense
In simple terms, refinancing means paying out your existing car loan by replacing it with another loan, typically from a different bank or lender.
Refinancing your car loan can make sense in several scenarios, but the main reason is usually the same: you have found a better deal that could reduce your overall costs.
Carlos Gasser, General Manager of RACV Finance, says refinancing may be beneficial if your financial position has improved since you first took out the loan, as this could open up new loan options.
"An example might be someone who took out a seven-year loan with a good credit rating and is now three years into that loan," Gasser says. "If they've paid down some of their mortgage or other debts, kept up with credit card repayments and improved their credit score, they may have access to better loan options."
"If interest rates have changed in that time and are now lower than the rate they originally chose, it might make sense for that person to refinance, even after considering any potential break costs from the original lender."
"When customers come to RACV Finance to refinance, we review to ensure they are meeting their objectives."
Calculating potential savings with refinancing
There isn't a simple online car refinance calculator that can instantly answer your questions, but if you do some homework, you could save yourself thousands of dollars.
The obvious area to save money is on the interest rate, because if it has dropped significantly since you first took out the loan, refinancing would allow you to get the lower rate on-going. Coupled with the loan amount being smaller (as you've paid it down), your repayment costs will be lower under the new terms.
"Refinancing is prevalent in the market and generally depends on the cycle," Gasser explains. "When you're in a rising rate environment, it generally would be a lower percentage of people who would be refinancing because the rates available in the general market are probably higher than what they were when they originally got the loan.
"And vice versa. So if you think pre-COVID pandemic, a strong borrower profile might've been locking in at around eight to nine per cent for a car loan. And in COVID, that was maybe five to six per cent. That type of large rate change in the general market can mean it's more or less attractive for refinancing."
But there are more than just interest rates you need to consider. Different lenders apply different fees and charges, most pertinently in this instance, a 'break fee' that is usually payable in order to pay out your existing loan early, either with your current lender or a new one.
"Each lender has break fees and although we've got a flat rate at RACV Finance, others may charge a percentage or tiered fees," Gasser says. "So break fees can be quite significant that they potentially offset the benefit that you'd get from a rate reduction."
Including any fees and charges, both in relation to your previous loan and your new one, is critical to your calculations. If the fees and on-going charges are high enough, they could negate the potential interest rate savings.
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If you’re seeking lower repayments, refinancing your car loan could help through a new loan term. Image: Getty
Step-by-step refinancing guide
If you do decide to refinance, these are the steps you should take.
Start by looking at the details of your current loan. Check what the interest rate is, the remaining terms and make sure you know what the break fee, and any other potential charges are, so you know precisely what you are facing financially.
Next, look at alternative lenders. Check the same details - interest rates, comparison rates, fees and charges - to ensure that you are getting a better deal. Be sure to factor in all the various elements that make up the loan.
The next step is to apply for the new loan, which is the same process you undertook to get the original loan. Your new lender will then pay out your existing loan, and you will then start repaying your new loan.
How refinancing impacts repayments
Refinancing can bring down your repayments because you can re-negotiate the terms of the loan - not just the interest rate, but also the length of it.
You should be applying for a smaller principal (total loan amount), as you will have been paying off the initial loan. This means that the interest rate is already applied to a smaller sum, but if you can refinance at a lower rate, you'll reduce your repayments further. Equally, you can adjust the terms of your loan, so that if you're refinancing two years into a three-year loan, you can take out another three-year loan to spread your repayments out over a longer period.
However, what you need to consider in that scenario is that while your repayments each week/month would be smaller, and even with a lower interest rate, you could be spending more over the long run as you will continue to pay interest throughout the entire loan period.
So, make sure you run the numbers carefully and, ideally, speak to a certified financial advisor to ensure you are getting the best deal for yourself today and into the future.
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R.A.C.V. Finance Limited ABN 82 004 292 291 Australian Credit Licence No. 391488. RACV Finance is subject to RACV lending criteria. Conditions, fees and charges apply.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about financial products. You should always seek your own professional advice that takes into account your own personal circumstances before making financial decisions.
