What Is Car Refinancing?
Car refinancing means replacing your current finance agreement with a new one. The new bank pays off what you still owe on the old loan, and you start again with a new rate and a new repayment schedule. Carfin arranges car refinance through the top South African banks.
Refinancing is secured against the car itself. So the car must be registered in your name and have a market value that supports the balance you still owe.
The car does not change hands. You keep driving it. Only the finance agreement changes.
Can You Refinance Your Car?
You can, if you meet Carfin's basic criteria:
- You are at least 24 months into your current finance deal
- The car is registered in your name
- Your finance account is not in arrears
- You take home at least R10,000 a month
- Your credit profile is one we can take to the banks (the pre-qualification tells you)
Carfin cannot help if you are under debt review (the National Credit Act does not allow new credit until you have a clearance certificate), or if you have a judgment that has not been paid and rescinded.
When Does Refinancing Make Sense?
Refinancing is not always the right move. These are the four situations where it usually is.
Rates have dropped since you signed
If you are on a linked rate, your rate has already followed prime down. If you signed a fixed rate when rates were high, you may still be paying above today's market. A new fixed rate would reflect today's lower rates.
Your credit profile has improved
Banks price risk. If your record was weak when you first applied, you probably got a higher rate. Two or three years of clean payments changes that profile, and competing banks may offer a better rate. If you are unsure where you stand, read car finance with bad credit.
Your instalment is straining your budget
Refinancing over a longer term lowers the monthly figure, but it increases the total interest you pay. That can be a fair trade when the alternative is falling behind. Understand the total cost before you decide.
A balloon payment is coming due
If you cannot settle a balloon in cash, refinancing turns it into monthly instalments. See refinancing a balloon payment below.
Already 24 months into your deal?
See where you stand before you ask for a settlement letter.
Apply nowStart with a 2-minute pre-qualificationSoft check, no effect on your credit scoreNCR Approved Finance Broker NCRCP2341
Is Refinancing Your Car Worth It?
It is worth it when the total saving over the months you have left is bigger than the one-off costs of switching. That is your break-even test.
- Work out the monthly saving: your current instalment minus the new one, over the same remaining term.
- Multiply it by the months you have left.
- Add up the one-off costs: the early settlement cost on your settlement letter, the new bank's initiation fee and Carfin's fee (see what it costs).
- If the total saving is bigger than the costs, refinancing pays. If not, it does not.
Example: R200,000 still owing, 48 months left, currently at 15%. Same balance and term, only the rate changes.
| Rate | Monthly instalment | Saving a month | Saving over 48 months |
|---|---|---|---|
| 15% (current) | R5,566 | ||
| 14% | R5,465 | R101 | R4,841 |
| 13% | R5,365 | R201 | R9,631 |
A 1 percent cut saves about R101 a month, or R4,841 over the remaining term. A 2 percent cut saves about R201 a month, or R9,631. If your one-off costs come to more than that, refinancing for the rate alone costs you money.
The rates are illustrations, not offers. Instalments use the same formula as the car finance calculator and exclude bank fees.
Refinancing a Balloon Payment
You can refinance a balloon that is coming due. A new finance agreement settles the lump sum and you repay it monthly over a new, shorter term. The bank runs its normal credit and affordability checks, and the car's value must support the amount.
Start the process a few months before the balloon falls due, so there is time to compare offers. The guide to balloon payments shows what a balloon costs and your other options.
How the Refinancing Process Works
There are six steps, from checking your current deal to the new bank settling the old one.
Check your current deal
Find your current finance agreement. Write down your outstanding balance, monthly instalment, interest rate (fixed or linked to prime), remaining term and any early settlement clause. The car finance calculator shows what a new rate would do to the instalment.
Get your settlement amount
Ask your current bank for a settlement letter. It shows the exact amount needed to close your agreement, including any early settlement cost, and the date it is valid until.
Apply for refinance through Carfin
Send Carfin your application and documents. Carfin sends one application to the top banks at the same time, with one credit enquiry on your record, not one per bank.
Review and compare your offers
Carfin shows you every bank offer. Compare the total cost of credit, not only the instalment. A lower instalment that comes from a longer term can cost more overall.
Accept and sign your new agreement
Accept the offer that suits you and sign the new agreement. Your consultant takes you through every line first: the rate, the term, any balloon and the total cost of credit.
New bank settles the old deal
Your new bank pays the settlement amount straight to your previous lender and your old account closes. You then pay the new bank. You do not handle any money.
What Documents Do You Need?
Banks check your identity, income and address, and the deal you already have. Get these ready up front to avoid delays.
Salaried employees
- Valid South African ID
- 3 months recent payslips
- 3 months bank statements (where your salary is paid)
- Proof of residence (not older than 3 months)
- Current finance agreement or settlement letter
Self-employed / business owners
- Valid South African ID
- 6 months business and personal bank statements
- Latest two years financials (if available)
- Proof of residence (not older than 3 months)
- Current finance agreement or settlement letter
Upload from anywhere
All documents can be uploaded online. Carfin is 100% online.
What Does Refinancing Cost?
Refinancing has one-off costs and the ongoing costs of the new deal. Your settlement letter and the new bank's quote show the exact figures.
| Cost | Who charges it | Where to find the figure |
|---|---|---|
| Early settlement cost | Your current bank | Set by your credit agreement and capped by the National Credit Act. Your settlement letter shows it. |
| Initiation fee | The new bank | Capped by the National Credit Act. Shown in the new bank's quote, usually added to the loan. |
| Monthly service fee | The new bank | A monthly service fee set by the bank, shown in its quote. |
| Carfin's fee | Carfin | R7,900 in total, shown before you sign. |
| Credit life insurance | The bank, or your own insurer | You may use your own cover instead of the bank's product. |
Carfin's fee is R7,900 in total: an R5,950 admin fee (VAT included) plus R1,950 registration, paid at cost to the licensing department. Licensing is separate. You see every cost before you sign.
Credit life insurance
Banks often offer credit life insurance, which covers your repayments if you die, become disabled or are retrenched. You are entitled to choose your own credit life cover. The bank cannot force you to take its product.
