Car Loan Refinancing in Australia: When It Saves You Money
Car loan refinancing in Australia explained — when it saves you money, the exit fees to watch for, and how to switch lenders in 5 steps.
Refinancing your car loan can save you thousands — or cost you money if you don't do the maths. Here's exactly when refinancing makes sense in Australia, the fees to watch for, and a simple 5-step process to switch lenders without getting burned.
When Refinancing Actually Saves You Money
Refinancing isn't free — there are exit fees on your current loan and establishment fees on the new one. For it to be worth it, the interest savings need to outweigh the switching costs. Here are the three scenarios where it usually pays off:
Refinance if any of these apply:
- Your credit score has improved significantly since you took out the loan (e.g. from 550 to 700+)
- Market interest rates have dropped and you can get a rate at least 1.5–2% lower than your current rate
- You originally took dealer finance at a high rate (10%+) and can now get a bank loan at 7–8%
A $30,000 loan at 11% over 5 years = $655/month, $9,300 total interest. Refinance to 7% with 3 years remaining = $927/month (shorter term) but only $3,374 total interest remaining. Even after $500 in fees, you save roughly $5,400.
The Fees That Eat Your Savings
Before you get excited about a lower rate, tally up the costs of switching:
| Fee | Typical Cost | Who Charges It |
|---|---|---|
| Early termination fee | $200–$700 | Your current lender |
| Discharge/admin fee | $50–$350 | Your current lender |
| Establishment fee | $200–$500 | New lender |
| PPSR transfer | $10–$30 | Government |
| Total switching cost | $300–$1,200 | — |
Some loans — especially dealer finance and loans from second-tier lenders — have punitive early exit fees that can be $1,000+. Always request a payout figure from your current lender before committing to refinance. The payout figure includes all fees.
How to Calculate Your Savings
Here's the simple formula:
- Get your current payout figure from your lender (includes remaining balance + exit fees)
- Get a quote from the new lender (new rate, new establishment fee, new monthly repayment)
- Calculate total remaining cost on current loan: monthly payment × months remaining
- Calculate total cost on new loan: new monthly payment × new term + establishment fee
- If new total is lower by more than $500, refinancing is worth it
Don't just look at the monthly payment. A lower monthly payment on a longer term can actually cost you more in total interest. Always compare the total cost of the loan, not just the monthly figure.
The 5-Step Refinancing Process
Step 1: Check your current loan
- Request a payout figure from your current lender
- Check if there are early exit fees (read your loan contract)
- Note your current interest rate, remaining balance, and months left
Step 2: Check your credit score
- Get a free credit score at getcreditscore.com.au or your bank's app
- If your score has improved since you took out the loan, you're in a strong position
- Dispute any errors on your credit report before applying
Step 3: Compare lenders
- Get quotes from at least 3 lenders (your bank, an online lender, and a broker)
- Compare using the comparison rate, not the advertised rate
- Ask about establishment fees, monthly fees, and early exit fees on the new loan
Step 4: Apply
- Submit a formal application with your chosen lender
- Provide proof of income, ID, and your current loan details
- The new lender will value the car and run a credit check
Step 5: Settle
- The new lender pays out your old loan directly
- You start making repayments to the new lender
- Confirm the old loan is closed and get a discharge letter
When Refinancing Is a Bad Idea
- Your loan is almost paid off — the remaining interest is so small that fees will eat any savings
- You're extending the loan term to lower payments — you'll pay more interest overall
- Your car is worth less than the loan balance (negative equity) — most lenders won't refinance
- The exit fees exceed 50% of your projected interest savings
Should You Use a Broker?
A finance broker can compare multiple lenders at once and may access rates not available direct to consumers. They're paid by the lender (not you), but be aware they may favour lenders that pay higher commissions. Always ask: 'What's the best rate you can get me, and what's your commission on this loan?'
Use our free Car Loan Calculator to compare your current loan against a potential refinance, then run the deal through our Fair Deal Checker before you sign.
Quick Answers
When does refinancing a car loan make sense?
Refinancing makes sense when your new rate is at least 1.5–2% lower than your current rate, your credit score has improved since you took out the original loan, or interest rates have dropped market-wide. The savings on interest must exceed the exit and establishment fees.
What fees are involved in refinancing a car loan?
You may face an early termination fee from your current lender ($200–$700), a discharge fee ($50–$350), a new loan establishment fee ($200–$500), and potentially a PPSR transfer fee. Total costs typically range from $300 to $1,200.
Can I refinance a car loan with bad credit?
It's harder but not impossible. If your credit has improved since you took out the original loan (even if it's still not great), you may qualify for a better rate. Specialist lenders may refinance bad-credit loans, but the rates may not be much better than what you have.
How long does refinancing take?
Most car loan refinances settle within 3–7 business days from application. The new lender pays out your old loan directly — you don't need to handle the money yourself.
General information only. This article is for educational purposes and does not constitute financial advice. Consider your personal circumstances and speak with a licensed financial adviser before making loan decisions.