Many consumers wonder if now is a good time to refinance their vehicles with inflation and interest rates continuing to increase.
With the repo rate increasing every two months, their instalments also increase and while food prices also keep increasing, the extra few rands in your pocket can really make a difference.
Refinancing a vehicle means replacing your current car loan or finance agreement with a new car loan to revise your debt repayment schedule. Applying for another loan to repay your old debt is known as refinancing.
As the new loan is usually lower than your existing loan, vehicle refinancing may be a way to ‘save’ money on your monthly car repayments. You can also extend the repayment period or negotiate a lower interest rate. Some banks and lending houses also offer the option of refinancing a vehicle that is fully paid up should it qualify.
“It is important to understand what the term means and when to refinance a vehicle or not.
There is one school of thought that advocates you should rather consider selling your car before you look at refinancing it, but that is not always a simple decision.
“If the new loan is at a lower interest rate, for example, that could save you some money in the long run,” explains Lebogang Gaoaketse, head of marketing and communication at WesBank.
ALSO READ: What all those car insurance terms really mean
Refinancing a vehicle is a good option especially if it results in lower monthly payments or a lower interest rate. However, it is important to carefully consider the potential advantages and disadvantages and do some homework for the best loan terms and interest rates before making a final decision.
Gaoaketse uses this example to show how refinancing can benefit you financially.
If you bought a 2008 double cab that cost you R200 000, your monthly instalment would be R 4 650 over 72 months at an interest rate of 16%. Refinancing it over the same term at 12% interest would reduce the monthly instalment to R2 950, benefiting your monthly budget with a saving of R1,700.
ALSO READ: SA consumers surviving on credit in cost-of-living crisis
However, he warns that the is not a one-size-fits-all solution to structuring a car finance deal.
“If you are honest with yourself and know how much you can afford on the vehicle repayment, you are the best-informed to choose the best way to pay off the car. As a responsible lender, WesBank will also only provide credit for an amount that you can afford to pay back.”
“At the end of the day, you need to assess your situation and make the most informed financial decision based on that assessment,” Gaoaketse says.
Download our app and read this and other great stories on the move. Available for Android and iOS.