What Is Refinance?

Car-refinancing is the process of taking a new loan on your existing car, either with the same or another financial institution. Your previous vehicle loan is settled in the process. Whilst this replacement loan can improve your immediate cash flow position, it is only feasible and advised if certain criteria apply. Take a look at the advantages and disadvantages of refinance below:

  • Provided you have been paying your instalments regularly, you are almost certain to get a better interest rate. This applies to every car owner, but more so to individuals that are paying high interest rates. First time buyers and young people are often burdened by high rates as the Credit providers are still trying to assess your risk profile and payment behaviour.
  • If you are going to finance your current outstanding amount over a full term, your monthly instalments will be lower. Here follows an example:

    Original Finance Structure

    Original Purchase Price R 100 000
    Original Interest Rate 14%
    Instalments Paid 30
    Current Balance R 58 000
    Current Instalment R 2400

    Re-financed Structure

    New Loan Amount R 61 000
    New Interest Rate 11%
    Instalments Due 60
    New Balance R 61 000
    New Instalment R 1400

  • Immediate improvement on your cash flow.
  • Your repayment term will probably be extended. Looking at the example above, in the first column you only had 30 instalments left, whilst the new loan leaves you with 60 outstanding instalments.
  • Effectively you are only extending your current liabilities over a longer term, with the effect it is taking you longer to repay your loan.
  • A new loan will incur costs, such as administration charges and vehicle inspection fees.
  • Your car has to be "financeable". The following factors will determine whether you will be able to refinance your car:
    • Age of vehicle - If your vehicle is older than 10 years you will probably not get a loan on it.
    • Odometer reading - Banks will not finance a car with its mileage too high.
    • Condition of vehicle - your car has to be in a condition that justifies its current book value - Book value is normally the current value as per TransUnion ITC's M & M book values.
    • Overall condition of vehicle - will your car last the new term of finance? The last thing you want, is to finance your car over a longer term and it doesn't last the term, mechanically or otherwise.
    • Expected mileage - If you travel a lot and have high annual mileage, it is not advisable to refinance your car.
Refinancing your car can bring immediate relief to your monthly cash flow position. However, it may not always be in your best interest to do so - follow the criteria above to determine whether it will work for you. To calculate new instalments, follow the next steps:
  1. Contact your current financier and get your outstanding balance.
  2. Go to our instalment calculator here and calculate a new instalment over the term you want.
  3. If you are happy with what you see, you may apply for refinance here.