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Canadians love their cars, and frequently use loans to finance them – 85% of all new cars purchased in the country are financed. But all of this borrowing leads to costly loan payments, and many Canadians will turn to refinancing at some point to try and save money.
Auto refinancing is always a personal choice, and it’s important to understand your options and associated costs when considering this route. So here is a breakdown of everything you need to consider when making this major financial decision. Let’s start with a list of some of the most reputable refinancing companies in Canada; compare their rates, terms and past customer reviews in the table below.
Choose one of the lenders below to be taken to their application or Pre-apply online here and we will connect you with an auto financing provider in our network.
Car refinancing is essentially the act of taking out a new loan for your car, to pay off your existing auto loan. People do this when they can get better terms on the new loan, and so in effect make their auto loan payments more affordable. Most refinancing loans will cover the entirety of the remainder of the old loan, as well as any closing fees or costs associated with closing the original loan early.
Not every refinancing loan has lower interest rates than older loans, but you may be able to refinance to a longer loan term, or a loan with more flexibility. Most people will only choose to refinance if they can find a deal that means they’ll end up paying less overall, over the life of the loan, but sometimes it is preferable to have a longer life loan with lower monthly payments, even if that means more interest in the long run. It all depends on your priorities.
Consumers can, in theory, refinance at any time, but there are certain circumstances where it makes the most sense to refinance. These are typically circumstances that will result in you qualifying for better rates, and so will save you money.
Common reasons for refinancing include:
Although refinancing may seem attractive, there are situations where it can end up costing you more. It’s best not to refinance if:
The process of refinancing your car is not complicated – it’s very much like the process of getting your original auto loan! Here’s what you need to know:
If you have an existing car loan, the likelihood is that you’re eligible for refinancing. The only exceptions to this are if your financial or personal circumstances have changed for the worse.
You may struggle to qualify for a new auto loan if:
Your personal information:
Your car’s information:
Your current loan information:
Once you have considered your current position, your needs, and have decided what kind of new auto loan will work best for you, it’s time to compare providers and apply for refinancing. Comparing providers means comparing like with like; loans with differing loan terms will have different monthly costs, so be sure you are comparing the total cost of the loan over its lifetime, as well as monthly outgoings.
When you have found a provider you like, apply with them via their application process. This is where having gathered all of your documentation beforehand can help. You can apply with multiple providers if you like, and compare their offerings, or pre-apply to find who will approve you before moving ahead.
Auto refinance loans are not always the best option; for those in strong financial positions, refinance loans are an attractive way to access better loan terms, but for those struggling to make their existing auto loan payments, other options are available that may prove more useful. Different types of loan – such as a home equity loan, or a debt consolidation loan – may give you access to better rates overall and help you to stay afloat.
If you have an existing car loan, chances are you are eligible to refinance it with a new loan; the only exception to this is if your financial circumstances have changed for the worse since taking out your original loan. If your credit score has decreased, you no longer have employment, or if you have more debt, then it might be hard to find a new loan you qualify for, and you’re unlikely to get better rates than with your current loan.
Interest rates for auto refinancing loans vary according to your financial situation and the car in question; rates can range from 3% to over 25%, with the lower rates reserved for those with good credit, positive equity or high income.
It is possible to refinance your car loan if you have bad credit, though you may want to consider whether it’s a good idea. Refinancing is usually a good choice if you are able to get a more competitive deal, but with bad credit this is unlikely. If you have bad credit and are struggling to make your auto loan payments, you may want to consider an alternative, such as a debt consolidation loan, in order to lower your monthly outgoings while remaining solvent.
Yes, it is possible to use a refinancing loan to get cash back, by taking out a new auto loan for more than the amount you need to pay off your old loan. However, remember that this is an expensive way to access cash, as you will be paying interest for this extra amount over the life of the car loan.
Taking out any new loan has a temporary negative impact on your credit score, but as long as you continue to make your loan repayments properly, this effect will be temporary and your credit score will rebound. Refinancing will only have a long term negative effect if you fail to meet your new loan’s obligations.
You can lower your monthly car loan repayments by taking out a new loan with a longer life (this results in lower monthly payments for longer, so the loan ends up costing you more overall), paying down part of your loan, or finding a new auto loan with a better interest rate.
When refinancing your car, you need to be aware that you will probably be subject to early prepayment fees and closing fees on the original auto loan you are replacing. These fees vary lender to lender, and can sometimes be thousands (effectively making the refinancing unaffordable). Always be aware of these fees before signing any auto loan contract.
Amy Orr is a professional writer and editor with over 10 years of experience in the Canadian, U.S. and U.K. financial markets. She has written for numerous publications on topics as diverse as economic literacy, corporate finance, and technical analysis of numerical data. Prior to transitioning to full-time writing, she worked in the hedge fund sector. Her academic background is astrophysics, and she has a Masters in Finance from the University of Edinburgh Business School.
Jenna West is Smarter Loans' in-house financial writer and content director. She has been covering the Canadian FinTech and finance industry since 2017, including financial trends analysis, industry surveys, regulatory updates and changes in Canadian consumer behaviour when it comes to finance.
