How to Refinance Your Car Loan in Australia

Why Refinancing Your Car Loan Could Save You Thousands

Many Australians are still paying an interest rate on their car loan that no longer reflects their circumstances. You may have taken out your loan when rates were higher, when your credit score was lower, or when you accepted the first offer from a dealer. Car loan rates now start from 5.49% p.a., which could be significantly less than what you are currently paying.

Refinancing means replacing your existing car loan with a new one, ideally at a lower interest rate or with better terms. If the numbers stack up after accounting for any exit fees, it can put real money back in your pocket over the remaining life of your loan.

This guide walks you through every step, from working out whether refinancing makes sense to settling your new loan. You can also compare car loan rates from 22 lenders right now to see what is available.

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When Refinancing Makes Sense

Refinancing is not always the right move, but there are several situations where it is well worth investigating.

Interest rates have dropped

If the RBA cash rate has fallen since you took out your loan, or if lenders have become more competitive, you may be able to lock in a meaningfully lower rate. Check our interest rate forecast to see where rates are heading.

Your credit score has improved

If you have been making consistent repayments and managing your finances well since you took out the loan, your credit score may have improved. A better score can qualify you for lower rates that were not available to you originally. Our credit score guide explains how this works.

You want lower repayments

Refinancing to a lower rate can reduce your monthly repayments, freeing up cash flow for other expenses. Just be careful not to extend the loan term unnecessarily (more on that below).

You want to consolidate debt

Some borrowers refinance their car loan and a personal loan into a single facility. This can simplify repayments, but make sure the total cost is genuinely lower and that you are not securing unsecured debt against your vehicle unnecessarily.

You are unhappy with your current lender

Poor customer service, inflexible terms, or a lack of online tools can all be valid reasons to switch, even if the rate saving is modest.

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When NOT to Refinance

Refinancing is not always worthwhile. Here are the key situations where it may cost you more than it saves.

You are near the end of your loan term

Car loans are front-loaded with interest. In the early years of a loan, a larger portion of each repayment goes towards interest. By the time you are in the final year or two, most of your repayment is principal. Refinancing at this stage delivers minimal interest savings and may not justify the effort and fees involved.

Break costs are too high

If you are on a fixed-rate loan, early exit fees or break costs could wipe out any savings from a lower rate. Always calculate the total cost of exiting before you commit. Our guide on car loan fees explained covers this in detail.

Your car is too old

Most lenders have vehicle age limits for secured car loans. If your car is older than seven to ten years (or will be by the end of the new loan term), you may struggle to find a lender willing to use it as security. This could mean you need an unsecured loan at a higher rate, which defeats the purpose.

The remaining balance is small

If you only owe a few thousand dollars, the savings from a rate cut will be small in dollar terms. The time spent applying and the potential fees may not be worth it.

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How Much Could You Save

The potential savings from refinancing depend on the rate difference, remaining balance, and remaining term. Here is a worked example using hypothetical numbers.

Example scenario

The result

In this example, refinancing from 9.00% p.a. to 7.00% p.a. on a $25,000 balance over five years saves approximately $1,436 in total interest and reduces monthly repayments by around $24 per month.

Do not forget exit costs

If your current lender charges a $300 discharge fee and a $200 break cost, your net saving would be approximately $936. Still meaningful, but the fees eat into the benefit. Always subtract exit costs from the gross saving to get the true picture.

Quick rule of thumb

If the rate difference is at least 1.00% p.a. and you have more than two years left on your loan, refinancing is usually worth exploring. The larger your remaining balance, the bigger the dollar saving.

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The Refinancing Process Step by Step

Step 1: Review your current loan

Dig out your loan contract or log into your lender's portal. Note down:

• Your current interest rate (and whether it is fixed or variable)
• The remaining balance
• The remaining term
• Any exit fees, break costs, or discharge fees

Step 2: Calculate your break costs

If you are on a fixed rate, contact your current lender and ask for a break cost estimate. For variable-rate loans, check for any discharge or settlement fee (typically $0 to $300).

Step 3: Compare new rates

Browse available car loan rates from multiple lenders. You can compare 31 products from 22 lenders on our car loans page. Look at the comparison rate, not just the headline rate, as it includes most fees.

Step 4: Check your eligibility

Before you formally apply, confirm that:

• Your vehicle meets the new lender's age and condition requirements
• You have sufficient equity (you do not owe more than the car is worth)
• Your credit score is in good shape. Check our credit score guide if you are unsure

Step 5: Apply for pre-approval

Most lenders offer a pre-approval process that gives you a conditional rate without a full credit check. This lets you confirm the rate before committing.

Step 6: Accept and settle the new loan

Once approved, your new lender will typically handle the settlement process. They will pay out your existing loan, arrange the transfer of security (the PPSR registration on your vehicle), and set up your new repayment schedule.

Step 7: Confirm the old loan is discharged

After settlement, confirm with your previous lender that the loan is fully discharged and the security interest has been removed from the PPSR. Keep written confirmation for your records.

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Break Costs and Exit Fees

Understanding exit costs is critical when deciding whether to refinance. The type of fee depends on whether your current loan is fixed or variable.

Variable-rate loans

Variable-rate car loans typically have minimal exit costs. You may face:

• Discharge/settlement fee: $0 to $300 (a one-off administration charge)
• No break cost: Since there is no fixed rate contract, there is no break cost to calculate

Fixed-rate loans

Fixed-rate car loans can carry significant break costs, especially if rates have fallen since you locked in:

• Break cost: Calculated based on the remaining term and the difference between your fixed rate and current market rates. This can range from a few hundred to several thousand dollars.
• Discharge fee: The same administrative fee as variable loans, typically $0 to $300.

Is refinancing still worthwhile after fees?

Use this simple formula:

Net saving = Total interest saving from lower rate - Exit fees from current loan - Setup fees on new loan

If the net saving is positive and meaningful enough to justify the effort, refinancing makes sense. For a detailed breakdown of all the fees involved, see our guide on car loan fees explained.

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What New Lenders Look For

When you apply to refinance, the new lender will assess both you and the vehicle.

Vehicle requirements

• Age: Most lenders require the vehicle to be under a certain age at the end of the new loan term (commonly seven to ten years old at loan maturity).
• Condition: The car must be roadworthy and registered.
• Equity: You should not owe more than the car is worth. If you are in negative equity (the loan balance exceeds the car's market value), most lenders will not approve the refinance.

Your financial profile

• Credit score: A clean repayment history and a good credit score will get you the best rates. Even a moderate improvement in your score since your original loan can make a difference.
• Income verification: Lenders will want to see evidence of stable income, typically recent payslips or tax returns.
• Existing debts: Your total debt-to-income ratio matters. If you have taken on additional debts since the original loan, this could affect your borrowing capacity.

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Current Car Loan Rates

Here are some of the best car loan rates currently available across our panel. Compare these against your existing rate to see if refinancing could work for you.

The best rate on our panel right now is 5.49% - 12.24% p.a., with a comparison rate of 5.99% p.a.. See the full list of 31 products on our car loans comparison page.

For a broader look at which lenders are offering the most competitive deals, check out our guide on the best car loan rates in Australia.

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Common Mistakes When Refinancing

1. Extending the loan term

This is the most common trap. If you refinance a loan with three years remaining into a new five-year loan, your monthly repayments will drop, but you will likely pay more interest in total. Always try to match or shorten the remaining term when refinancing.

2. Ignoring fees

A lower rate means nothing if the exit fees, break costs, and new loan establishment fees eat up all the savings. Always calculate the net benefit after all costs.

3. Not checking vehicle age requirements

If your car is already six or seven years old, some lenders will not accept it as security for a new loan with a five-year term. Check the lender's vehicle age policy before you apply.

4. Falling for teaser rates

Some lenders advertise very low introductory rates that revert to a higher rate after a set period. Always check the revert rate and the comparison rate to understand the true long-term cost.

5. Making multiple full applications

Each formal loan application generates a credit inquiry on your file. Too many inquiries in a short period can lower your credit score. Use pre-approval or rate estimation tools where possible and limit full applications to your top one or two choices.