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The Ins And Outs Of Vehicle Refinancing

Oct 4, 2023 | Car, Finance & Refinancing

It’s relatively easy to refinance a car in South Africa, but just because refinancing might seem like a logical option for some people, that doesn’t mean that it’s the right choice for everyone.

You see, there are a number of benefits that can make the idea of refinancing your car extremely attractive. However, in order to make the right decision for your situation, it’s best to be properly informed on the topic so that you can weigh up the pros and the cons.

Before we dive into what the process involves, let’s explore the larger question of why you would want to do it at all – starting with what it means to refinance your car in the first place.

What is vehicle refinancing?

Vehicle refinancing is the process of taking a new vehicle loan out on your car. Essentially, you would be getting a replacement loan, either with the same or another financial institution. This new loan would then pay off your previous vehicle loan and give you new repayment terms that you would meet as part of your new loan agreement.

Before you apply, though, it’s a good idea to make sure that your car (and you) meet a few requirements. Keep in mind that different financial institutions will have different criteria, so these are merely general checks.

General criteria when considering vehicle refinancing:

  • You need to be a South African citizen and have a clear credit record.
  • You need to have a valid South African driver’s licence.
  • The car must not have been rebuilt or stolen/recovered.
  • The value of the car must be R45 000 or more.
  • The car can’t be any older than 2001, although we’ve seen that vehicles around 10 years old don’t always qualify.
  • The car’s mileage can’t be too high.
  • The car has to be in a condition that justifies its current book value and will last the new finance terms.

Why people consider refinancing their cars

There are some key advantages to refinancing your car that ultimately could save you a lot of money – both in the short- and long-term. For instance, you could get a lower interest rate and you could also lower your monthly loan installments, which could put you in the position of paying off the balance of your loan much quicker.

Vehicle refinancing can also offer you a way to address a situation where your current loan is greater than your car’s actual value.

In spite of these benefits, there are some disadvantages that you should be aware of. The main cons include the fact that there may be additional costs attached to taking out a new loan, like administration charges and vehicle inspection fees.

Additionally, refinancing your car could mean that your repayment terms are extended. This is not always the case but you should be aware of this possiblity.

How refinancing a car works

Step 1: Check all the costs

This involves some homework on your part so that you can understand what it will cost you to refinance your vehicle compared to how much you will benefit from the new loan.

Costs to confirm:

  • Pre-payment penalty clauses on your current loan.
  • The cost of paying off your car loan early.
  • Costs of re-registering the vehicle and transferring the title after securing the new loan.

Step 2: Find out if you qualify

Like we said before, different banks will have different criteria, so while our list of requirements should help you figure out if you do or don’t qualify, it’s still a good idea to shop around. Not only so that you can find a reputable institution whose loan you qualify for, but also to find the best deal with regards to the interest rate and loan payment period.

A word to the wise, on this point. It’s best to make a ‘soft enquiry’ and approach a few banks to get pre-qualified. Once you make a ‘hard inquiry’ through a bank for vehicle refinancing, your application will be flagged by the credit bureau and your credit score will decrease slightly because refinancing does affect your points.

Step 3: Gather all documents

Regardless of which bank you approach for the new loan, you’ll need to provide certain information in order to get the new loan. By gathering this information upfront, you can speed up the refinancing process.

The documents required:

  • A certified copy of your ID (or other proof of identity).
  • Proof of income, usually a 3-months bank statement.
  • A confirmation of cover letter to show proof of insurance.
  • Information on your current loan (outstanding balance, interest rate and loan period) from the loan provider.
  • Vehicle details, including the VIN and registration number, etc.

Step 4: Time to apply

Once you’ve decided that vehicle refinancing is right for you and have found a loan that you qualify for, with favourable interest rates and terms, it’s time to apply.

Thankfully, all this requires is filling in the loan application and handing over the documents requested. The bank will handle the transition your old loan to your new loan, although we should point out that you’ll need to check the original loan has been paid and your original loan is done and dusted. Just to make sure. You can also apply through the AA Money team who will make sure you get the best deal when applying for refinancing.

Feel informed?

We hope that this information helps, and don’t forget that AA Inform is home to a range of useful tools and resources, from working out fuel consumption for specific trips to calculating just how much your car has depreciated.

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