Canadian Car Loan Refinancing: Your Questions Answered


You didn't use to worry about your car payment. Now, it weighs on you like the world on Atlas' shoulders. And, since you are more than an hour to work (like 20-percent of all Canadians), it's not as if you can just sell the car. If this situation sounds familiar, it might be time for car loan refinancing.

Though the process seems daunting. Car Loans Canada is here to answer all your car refinancing questions.

What Is Car Loan Refinancing?

Auto refinancing is the process of replacing your current loan with a new one. This second loan often, but not always, comes from a different lender. Refinancing is usually done in the hopes of lowering one's monthly payment or interest rate.

Whether or not you're successful depends on a myriad of factors, including your credit score and payment history.

Where Can I Go to Refinance My Car Loan?

First things first, you should never go to the dealer for refinancing. For those few dealers that offer it, it's less about saving you money and more about making another sale. This leaves you with three options:

  • Your Local Bank: Everyone has access to a bank. But, they're not where you go for a good deal. Because of their obligations to investors, banks often end up charging higher interest rates than other institutions. The difference can sometimes be as high as 2-percentage points. On a $30,000 car loan, that can cost you hundreds of dollars every year.
  • A Credit Union: In most cases, you'll want to refinance through a credit union. That's why we heavily favor them in our lender-selection process. Because they're owned by the account holders, credit unions are heavily incentivized to offer low-interest rates. They also tend to be more forgiving of things like missed payments and bankruptcies.
  • Finance Aggregators (Like Us): Or, maybe, you can just get quotes from both. Call us biased, but we think our deals are pretty sweet. We're picky about the lenders we allow on our website, after all. Instead of wasting your time filling out five or six applications, why not just fill out one?

A word of warning: don't go with the first quote you receive! Take your time and get pre-approvals from three or four different lenders before making your final decision. Even $5 a month can save you over 400 dollars on an 84-month loan.

How Does Refinancing A Car Loan Work?

Getting refinanced in Toronto can be confusing. Let Car Loans Canada handle all your refinance car loan questions.

The process of refinancing your car loan looks almost identical to the process of financing it. You provide your would-be lender with things like your proof of income, your address, and access to your credit history. Unlike the first time, however, you also need to supply information about your current payment amount and interest rate.

Typically, your new loan balance will be equal to your old one. Though some lenders will let you take out cash during the refinancing process, this is not a good idea. Adding onto your principal can leave you drowning in negative equity. So, unless it's an emergency, avoid increasing the principal on your loan.

Why Should I Refinance My Car Loan?

To save money, of course! Car owners saved an average of 2.4-percent when they refinanced! To see how big of a difference this can make, give this calculator a whirl.

But, that's just an average! If any of the below situations apply, your savings can be much higher:

  1. Your Credit Score Went Up: Making steady payments on a car or credit card can lead to a drastic improvement in your credit score. This will likely qualify you for a lower interest rate. Use a site like Credit Karma or Borrowell to verify everything's on track.
  2. You Got Your Loan from a Dealer: Maybe you couldn't find a bank that was open. Or, at the time, you couldn't qualify for financing with anybody else. Regardless of why you did it, this is often a good reason to consider refinancing your car loan. Since dealers make money off of charging exorbitant fees, it's almost guaranteed that you'll find a lower rate elsewhere.
  3. You Can't Keep Up with Your Payments: Refinancing gives you a chance to extend the length of your loan and drastically lower your monthly payment. Just keep in mind that this will result in you paying more interest over the life of your loan.
  4. Interest Rates Have Dropped: Interest rates drop for a variety of reasons including regulatory changes, increased marketplace competition, and a shifting economic climate. If the average interest rate now is lower than when you first got your car, it might be time to refinance. Even a single percentage point can save you hundreds of dollars a year.

Refinance and Save

Why Shouldn't I Refinance My Car Loan?

Refinancing isn't a cure-all. It's not right for everybody and can sometimes harm you. Below are three reasons you might want to reconsider applying for a new loan:

  1. You Might End Up Paying More Interest: This usually isn't an issue if you don't extend the length of your loan. But, if you do, you'll end up paying more interest overall. Use a loan calculator to make sure refinancing will save you money when all is said and done.
  2. Your Interest Rate Could Go Up: If you refinance at the wrong time, or on a car that's entering its golden years, you might end up paying a higher interest rate with refinancing. That's why it's important to do your research beforehand.
  3. The Inquiries Can Hurt Your Credit Score: Hard credit inquiries can drop your credit by a couple of credit points. While one or two of them are nothing to worry about, a lot of them can seriously damage your credit rating. To avoid this, limit all your inquiries to a single two-week period. Since you can only get dinged for a hard credit inquiry once every 14 days, this will give you an opportunity to shop around sans credit consequences.

How Much Will Refinancing My Car Cost Me?

Refinancing your auto loan usually costs you nothing but time. In most cases, it actually saves you money. Unlike other types of financing, car loans rarely come with prepayment penalties. To secure an even lower interest rate, opt for paperless billing and automatic payment options.

How Long Should I Wait Before Refinancing My Car?

Generally, you need to wait six to twelve months after getting a car loan to refinance it. This gives you time to reap the benefits of making regular monthly payments. In that time, it's likely that your credit score will increase, leading to lower interest rates and smaller monthly payments. If your credit has fallen since you've gotten your vehicle, it might be time to review your finances. Even one missed payment can cripple your reputation with lenders.

Should I Extend My Loan Term When I Refinance My Car?

It's rarely a good idea to extend the length of your loan. While this will lower your monthly payment, it will cost you more in interest. So, unless it's an emergency, avoid doing so. And, unless someone's holding a gun to your head, don't be one of the x percent of Canadians stuck with an 84-month loan.

Keep more loonies for yourself when you refinance car loan with Car Loans Canada

Are You Ready to Refinance?

Now you should understand how refinancing your car works in Canada. If things don't work out the first time you try, there's nothing stopping you from waiting a little while and trying again.

And, whether it's your first time refinancing your car or your fifteenth, Car Loans Canada is here for you.

Click here to kickstart the refinancing process.

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