Car finance can be a convenient way to purchase a vehicle, especially when buying outright isn’t possible. However, as time passes, your financial situation may change—and so might interest rates. This is when many South Africans consider refinancing a car loan to reduce their monthly repayment or take advantage of more favourable loan conditions.
Refinancing a car loan is not a decision to take lightly. It involves replacing your existing vehicle loan with a new one, ideally under better terms. In this guide, we’ll walk you through how refinancing works, when it’s a smart choice, and what factors to consider before applying.
What Does Refinancing a Car Loan Mean?
Refinancing a car loan means taking out a new loan to pay off the balance of your current vehicle loan. The new loan may come from the same lender or a different one and often offers a lower interest rate, a longer repayment term, or both.
Your goal is typically to reduce your monthly instalment, cut down on interest costs, or adjust your repayment period based on your current income or financial priorities.
When Should You Consider Refinancing Your Car Loan?
Not every car owner will benefit from refinancing. However, certain situations make it a practical financial move. Below are some common reasons to consider refinancing:
1. Interest Rates Have Dropped
If the interest rate environment in South Africa has improved since you first took out your car loan, you might benefit from refinancing at a lower rate. Even a 1% drop in interest can lead to significant savings over time.
2. Your Credit Score Has Improved
When you first financed your vehicle, your credit score may not have been ideal, resulting in higher interest rates. If your score has increased due to responsible debt management, you might qualify for better loan terms now.
3. You’re Struggling With Monthly Payments
If your current car loan is putting pressure on your monthly budget, refinancing to extend the term can lower your payments. This can provide short-term financial relief, although it may increase your total interest paid.
4. You Want to Change Lenders
Some borrowers refinance simply to switch to a lender that offers better service, lower fees, or more flexible repayment terms.
Factors to Consider Before Refinancing a Car Loan
Before you proceed with car loan refinancing, it’s important to evaluate whether the benefits outweigh the potential costs.
1. Current Vehicle Value vs Loan Balance
Your car must still have sufficient value for a lender to consider refinancing. If your car has depreciated significantly, you may owe more than the vehicle is worth—a situation known as negative equity. Lenders may be unwilling to refinance such loans.
2. Remaining Loan Term
If you are close to the end of your current loan term, refinancing may not be worthwhile. Most of the interest on car loans is front-loaded—meaning you pay more interest in the early months. Refinancing near the end of the loan term may result in higher total costs.
3. Fees and Charges
Some car loans in South Africa come with early settlement or cancellation penalties. You’ll also want to watch out for initiation fees, admin costs, or other charges on the new loan.
4. Creditworthiness
Your credit profile will again be assessed during the refinancing application. Any missed payments, defaults, or judgements since your original loan could negatively impact your approval chances.
How to Refinance a Car Loan in South Africa: Step-by-Step
If you’ve reviewed the pros and cons and decided that refinancing is the right move, here’s a breakdown of how to do it:
Step 1: Check Your Current Loan Terms
Get your latest loan statement and find out:
- Outstanding balance
- Current interest rate
- Monthly repayment
- Remaining term
Understanding your current financial obligation will help you compare refinancing options effectively.
Step 2: Get a Current Vehicle Valuation
Approach a dealership or use an online car valuation tool to assess how much your vehicle is worth. This helps determine if refinancing is even possible and whether lenders will accept your application.
Step 3: Review Your Credit Report
Request a free credit report from bureaus like TransUnion, Experian, or XDS. Your credit score plays a significant role in whether you’ll be approved and what rate you’ll get.
Step 4: Compare Refinancing Offers
Research and compare car loan refinancing options from reputable South African lenders. Look at:
- Interest rate
- Loan term
- Monthly repayment
- Total repayment over the term
- Additional fees
Some well-known vehicle finance providers include:
- WesBank
- Absa
- Standard Bank
- Nedbank MFC
- Capitec Bank
- African Bank
Step 5: Apply for Refinancing
Once you’ve selected a lender, complete the application form and submit your documents, such as:
- South African ID
- Proof of income (recent payslips)
- Proof of address
- Vehicle details (make, model, year, and current mileage)
- Settlement letter from the original lender
Step 6: Approval and Settlement
If your application is approved, the new lender will pay off your existing loan directly. You will then begin repaying your new loan under the revised terms.
Pros and Cons of Refinancing a Car Loan
Here’s a quick overview of the advantages and disadvantages:
| Pros | Cons |
| Lower interest rate | Possible fees for early settlement |
| Reduced monthly instalments | May pay more in interest over a longer term |
| Improved cash flow | Negative equity can disqualify you |
| Switch to a better lender | Credit score still affects approval |
| Adjust loan term to suit your needs | Car value must support the refinance amount |
Can You Refinance a Car With Bad Credit?
Yes, but it may be more difficult. Some lenders offer bad credit car refinancing, but they usually come with higher interest rates and stricter conditions. If your credit has worsened, you might not qualify, or you may find that refinancing doesn’t actually save you money.
Tips for Successful Car Loan Refinancing
- Keep your payment history clean: Avoid missed payments before applying.
- Avoid unnecessary new debt: Don’t take on more loans or credit during the refinancing period.
- Use a loan calculator: Check how different interest rates and terms will affect your repayments.
- Negotiate: Don’t be afraid to ask your current lender for a better deal—they may offer to match your refinancing terms.
Who Should Avoid Refinancing?
Refinancing isn’t the best choice for everyone. You may want to avoid it if:
- Your vehicle is almost paid off.
- You’re in negative equity.
- You already have a competitive interest rate.
- Fees and charges outweigh potential savings.
Refinancing a car loan in South Africa can be a smart financial move if you’re struggling with high interest, want to lower your monthly costs, or your credit has improved.
