Refinancing a car loan: when it works and when it doesn't
Most car loans are signed in a hurry. The finance is arranged at the dealership on the day the car is bought, when the decision that has everyone's attention is the car rather than the contract. Refinancing is the chance to look at that contract again with none of the pressure of a sale attached to it. It is not automatically worth doing — sometimes the numbers say stay put — but it is worth checking rather than assuming.
What does it mean to refinance a car loan?
Refinancing a car loan means taking out a new loan that pays out the existing one, and then repaying the new loan instead. You keep the car. What changes is the contract: the interest rate, the remaining term, the repayment amount, whether there is a balloon at the end, and sometimes who the borrower is. Behind the scenes, the outgoing lender is paid its payout figure and discharges its security interest over the vehicle on the Personal Property Securities Register, and the incoming lender registers its own. Refinancing is not the same as topping up a loan to borrow more against the car, and it is not the same as ending a novated lease, which is a salary-packaging arrangement with your employer in the middle of it. Those are separate conversations with separate rules.
When is refinancing a car loan worth looking at?
The common triggers are all about something having changed since the contract was signed. The loan was arranged at the dealership without much comparison. Your income, credit history or expenses look different now than they did then. A balloon payment is coming due and there is no plan for it. The repayment is straining the budget and a longer term would ease it. Or you want to add or remove a borrower after a change in circumstances.
Interest rates set the backdrop. The Reserve Bank's cash rate target was 4.35% as at its 12 August 2026 decision, after an increase on 6 May 2026 (source: rba.gov.au, checked 1 September 2026). Car loan pricing does not track the cash rate one for one, but a loan written in a different part of the cycle was priced against a different backdrop.
There is also a regulatory reason older car loans can look expensive. ASIC banned flex commissions in car finance from 1 November 2018, an arrangement that had let the dealer arranging the loan set the interest rate, with a larger commission attached to a higher rate. Loans written before that date were priced under the old arrangement. Our comparison of dealer finance against a broker-arranged car loan goes through how the two channels differ now.
Refinancing does not reset what the car is worth. If you owe more than the vehicle would sell for, a new loan moves that gap — it does not remove it.
How do you work out your car loan payout figure?
Ask your current lender for a payout figure, sometimes called a settlement or termination figure. It is the number that matters, and it is not the balance on your last statement. A payout figure is calculated to a specific date and usually includes interest accrued to that date, any fees outstanding, and any early termination or break fee set out in your contract. It is normally quoted as valid only until a stated date, because interest keeps accruing after it is issued.
Two things are worth doing at the same time. Read the fees section of your existing credit contract so you know what leaving early costs before you go looking. And if you are unsure what is registered against the car, a PPSR search shows the security interests recorded against the vehicle's VIN.
What does refinancing a car loan cost?
There are costs on both sides of the switch, and they are what decide whether a lower rate is actually worth having. On the loan you are leaving: an early termination or break fee, and interest to the settlement date. On the loan you are taking: ASIC's Moneysmart lists the charges to look for on any car loan as an establishment fee, a broker fee where a broker arranges the finance, a dealership or introducer fee where one is involved, and ongoing monthly service fees, plus default fees if a payment is missed.
The comparison rate is the tool for putting those together. Moneysmart describes it as a single figure for the cost of the loan that includes the interest rate and fees, which is what makes one loan comparable with another — as long as you are comparing the same loan amount over the same term. Our comparison rate calculator shows how fees move that number, and the loan repayment calculator shows what a different term does to the repayment and to the total interest paid.
Watch the term especially. Stretching four remaining years back out to five or seven will lower the monthly repayment and can still increase what the loan costs overall.
Can you refinance a car loan with a balloon payment?
Refinancing a balloon is one of the more common reasons people look at a car loan again. A balloon is a lump sum owing at the end of the term; Moneysmart notes that while it lowers the regular repayments, the total cost of the loan is generally higher because interest is charged on the amount left sitting there. When the balloon falls due you can pay it out, sell the car and settle it, or refinance the amount over a new term.
The catch with refinancing a balloon is the car's age. Lenders look at how old the vehicle will be at the end of the new term, not at the start, and an older car narrows the options. Starting the conversation a few months before the balloon is due leaves room to compare rather than to react. We have written separately on how balloon payments work and what they cost.
What do lenders assess on a car loan refinance?
Broadly the same things they assess on a new car loan, plus the conduct of the existing one. Expect an assessment of your income and living expenses, your credit file, and the vehicle itself — its age, kilometres and condition, and its age at the end of the proposed term. Whether the loan is for personal use or business use changes which product applies and what evidence is required. Lenders also look at how the current loan has been repaid, because recent arrears are visible on your credit report under comprehensive credit reporting.
Approval depends on the lender's assessment of your circumstances against its own criteria, and no application is decided in advance of that. Different lenders on a broker's panel weigh vehicle age, loan purpose and credit history quite differently, which is usually the practical reason to compare rather than to reapply with the same lender.
Does refinancing a car loan affect your credit score?
It shows up on your credit report, yes. Each credit application is recorded as an enquiry, and several enquiries lodged across different lenders in a short period can read as difficulty obtaining finance rather than as careful shopping. Refinancing also closes one account and opens another, which shortens the average age of the accounts on your file. Neither of those is a reason on its own to leave a loan alone, but both are reasons to compare through one process rather than to apply in several places at once. Repayment history is reported monthly under comprehensive credit reporting, so keeping the existing loan up to date until it is formally settled matters more than the enquiry does. There is more on how this works in our guide to what your credit score affects.
Where to start
Get three numbers before anything else: your payout figure from the current lender, the early termination fee in your contract, and what the car is realistically worth today. With those in hand, a refinance either stacks up or it plainly does not, and you will know which within an afternoon. This information is general only and does not take your personal circumstances into account; all lending is subject to the lender's credit assessment and approval.
If you would rather not chase it alone, we compare car loans across our lender panel — see car loans and what a car loan broker does. Send through your payout figure and the car's details and we will tell you whether refinancing is worth pursuing or whether staying put is the better move.