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Can I extend the term of my auto loan?

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Buying a car is one of the most important financial commitments the average Australian will make, this is where vehicle financing comes in. duration of the auto loan.

The main reason you might want to extend the term of a car loan is usually to reduce your regular repayments. A short-term car loan typically lasts between 1 and 3 years, and a longer-term car loan is 3 to 5 years, with some car loans extending up to 7 years and more.

Depending on your interest rate and your costs, the shorter your auto loan, the higher your current repayments, but the less interest you will pay over the term of the loan, and vice versa for longer-term auto loans. . And if you’re having financial difficulty, it can become difficult to keep paying off the same higher repayment amounts on a short-term car loan. This is where extending the term of your car loan can be helpful.

For example, a $ 20,000 car loan with a 6% interest rate has very different monthly payments and total interest when you compare a loan term of 2 years and 5 years. While a 2 year car loan may charge less interest overall, the monthly repayments are more than double what is charged on a 5 year car loan.

Repayments on various auto loan terms – $ 20,000 loan at 6% interest rate

Auto loan term Monthly repayments Total interest charged Total cost of the loan
1 year $ 1,721 $ 656 $ 20,656
2 years $ 886 $ 1,274 $ 21,274
3 years $ 608 $ 1,904 $ 21,904
4 years $ 470 $ 2,546 $ 22,546
5 years $ 387 $ 3,199 $ 23,199

Source: RateCity.com.au. Note: Hypothetical repayments based on a $ 20,000 loan at 6% interest rate. Does not take into account fees or rate changes.

Your auto lender may allow you to extend the term of your auto loan by refinancing your loan. Let’s explore how car loan refinancing works and the potential benefits and negative effects of extending your car loan term.

How to refinance a car loan?

If you need to extend the term of your car loan, you may want to consider refinancing your car loan. Usually, auto loan refinancing involves switching from one loan to another, but most often with a new lender.

If you want to stick with your current lender, you may want to speak with a customer service representative to see if internal refinancing is available to you based on your financial situation. But if you want to extend your loan term and switch lenders, you will need to do your research.

There are a few simple steps you can take to help you find a shortlist of competitive car loan options:

  • Jump online and compare – Use comparison tools, such as charts and rating systems, to filter and compare car loan options. Comparison charts can help you compare apples to apples better, as you can see the pros and cons of different car loan options side by side. Comparing interest rates, fees, and features can help you get a complete picture of which new loan is best for your finances.
  • Do your math – You’ve narrowed down a shortlist of potential auto loans. Now is the time to see how these loans can fit your budget. If you are extending the term of your car loan for financial reasons, this step can be vital. RateCity Auto loan calculator allows you to enter loan amount, loan term, and interest rate to find out the estimated repayments for the new loan.
  • Financial health check – The last step to consider before refinancing your car loan is to assess your personal finances through a financial health check. This is essential to help reduce the risk of your application being rejected for not meeting a lender’s eligibility criteria. Just because you’ve been approved for a car loan once, doesn’t guarantee instant approval the next time.

    Review your personal financesincluding your credit report and credit score, and look for mistakes, debts that need to be paid off, and areas that can be improved. For example, if you are extending the term of a car loan for budgetary reasons because you recently lost income or your job, it may mean that you are not eligible for refinancing. You may need to meet certain minimum income to be approved for refinancing a car loan. Or, if you’ve racked up a lot of debt with multiple credit cards while paying off your car loan, it can put your application at a disadvantage until those balances are paid off.

What are the advantages and disadvantages of extending the term of your auto loan?

Making the decision to extend the term of your car loan is a personal decision, not a decision to be taken lightly. It is important that you weigh the pros and cons of extending the term of your car loan before proceeding.

Benefits of extending the term of an auto loan:

  • Fewer refunds in progress – As illustrated above, the longer the term of your car loan, the lower your current repayments.
  • Reduced interest rates and fees – If you choose to refinance with a new lender, you may be able to get a lower interest rate or lower fees with your new car loan.

Disadvantages of extending an auto loan:

  • No more interest charged – Again, as illustrated above, extending the term of your car loan means that you will be extending the period during which interest will be charged on your loan amount. This means that you could potentially pay more for a car loan than if you had kept a shorter loan term.
  • Change fee – Some lenders may charge a variety of fees to refinance a car loan, including an exit fee from your current lender and upfront and ongoing fees from the new lender.


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