Auto Refinancing

Auto Refinancing

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.

You can pre-apply for auto refinancing here at Smarter Loans and we will find a suitable lender for you in our network.

Pre-Apply For Auto Refinancing

Top Auto Refinancing Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$5,000 - $100,000
Starting at 11.99%
12 - 84 months

What Is Car Refinancing?


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.

Did You Know?

The average Canadian consumer has over $20,000 in auto loan debt.

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.

When Should I Refinance my Car?


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:

  • If your credit score has improved
  • If loan rates are down in general
  • If you have built equity in the vehicle
  • If you want to change the length of the loan
  • If you have a problem with your current lender
  • If you wish to remove a co-signer or add a payee

Although refinancing may seem attractive, there are situations where it can end up costing you more. It’s best not to refinance if:

  • Your car is more than 10 years old
  • You bought the car very recently
  • Your existing loan has punitive prepayment penalties
  • Your credit score has worsened
  • You do not have regular income
  • You have accumulated more debt
  • You are underwater on your existing loan

Did You Know?

Most people look to refinance their auto loan in the fourth year of their loan term.

How Do I Refinance My Car?


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:

Refinancing Eligibility

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:

  • You no longer have paid employment
  • Your credit score has gotten worse
  • Your car is much older
  • You are underwater on your existing loan

Information You’ll Need

Your personal information:

  • Name
  • Date of birth
  • Email address
  • Phone number
  • Residential address
  • Employment status
  • Proof of income (usually 3 months of paystubs)
  • Proof of residency
  • Banking information
  • Insurance information

Your car’s information:

  • VIN
  • Mileage
  • Make, model and year

Your current loan information:

  • Lender
  • Loan balance
  • Loan term
  • Amount you need to refinance

Decisions To Make When Refinancing

  1. How much do you need to refinance for? Most people go with the remaining balance of the existing loan, plus any penalties and fees, but there are options for more or less if you either need cash back, or are able to help pay down the car debt.
  2. How long a loan term do you want? Longer term loans will cost less monthly, but more overall because of compound interest. Shorter term loans will get you out of debt faster, but result in higher monthly payments.
  3. Are there other factors to consider, such as adding or removing a payee? Do you need a loan with more flexible terms, or better customer service? Do you want to change your payment frequency?

Did You Know?

More than half of Canadians who take out auto loans on new cars want to make their loan payments every two weeks, to coincide with the arrival of their paychecks.

What To Look For When Comparing New Loans

  1. Loan amount
  2. Interest rate and APR
  3. Fees
  4. Repayment flexibility
  5. Reputability of provider

Applying for Refinancing

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.

Pros and Cons of Refinancing


Pros

  • Lower your monthly costs via lower interest rates or a longer loan term
  • Lower your total interest paid with lower interest rates or a shorter loan term
  • Switch to a provider with better service

Cons

  • Fees and prepayment penalties may offset financial gains from better interest rates
  • Lengthening loan term will increase the overall cost of the loan
  • Not always possible, if your financial situation has changed negatively

Alternatives to Refinancing


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.

Did You Know?

Over 30% of consumers have negative equity in their car, at an average of $6700, when they break their original car loan.

Frequently Asked Questions About Auto Refinancing


Am I eligible to refinance my car loan?

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.

What is the average car refinancing interest rate?

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.

Can I refinance my car if I have bad credit?

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.

Can I refinance my car to get cash back?

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.

Will refinancing my car affect my credit score?

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.

How can I lower my car repayments?

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.

What fees do I need to pay when refinancing my car?

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.

Written By Smarter Loans Staff


The Smarter Loans Staff is made up of writers, researchers, journalists, business leaders and industry experts who carefully research, analyze and produce Canada’s highest quality content when it comes to money matters, on behalf of Smarter Loans. While we cannot possibly name every person involved in the process, we collectively credit them as Smarter Loans Writing Staff. Our work has been featured in the Toronto Star, National Post and many other publications. Today, Smarter Loans is recognized in Canada as the go-to destination for financial education, and was named the “GPS of Fintech Lending” by the Toronto Star.

Types of Auto Refinancing offered:

  • Auto Refinancing

Elite Trusted Lenders

These companies are recognized for their excellent service, product offering and financial literacy education for all Canadians.