Auto loan refinancing can be done either through banks or lenders. There are even online money lenders in Singapore who can help you with this kind of arrangement.
If you haven’t decided yet whether to refinance or not, here are a few tips for you.
What is refinancing?
Refinancing is when you ask another bank or lender to pay off your remaining debt for you. In turn, they will give you a loan with new terms, such as a longer repayment period, smaller monthly payments, or a lower interest rate. Refinancing is often used for large loans like home and auto loans. It makes paying off the loan easier.
You can refinance your auto loans with either banks or lenders, as long as they offer the service.
When should you refinance your auto loan?
If you’re facing a financial downturn and still have a significant amount to pay down for your auto loan, refinancing may be a good idea. This way, you can get more leeway to pay off the loan with the new terms.
You need to be aware, though, that auto loan refinancing in Singapore has a defined limit. The Monetary Authority of Singapore (MAS) has set a 7-year limit on auto loan refinancing. This means that the maximum tenure of a refinancing of an auto loan is 7 minus the number of years since the first auto loan was disbursed.
For example, you took out an auto loan worth S$100,000 two years ago, and now you still owe S$50,000 on it. You then decide to refinance the loan. According to the MAS rule, you can refinance the S$50,000 for a maximum of 5 years only (7 years maximum – 2 years since you took out the auto loan = 5 years maximum for refinancing).
Also, take note that you can refinance with the same loan provider. Ask your bank or lender if they can modify the terms of your auto loan. You may be able to negotiate a longer repayment period or a lower interest rate. This way, you do not have to apply for a separate refinancing package with a different provider.
If not, you can approach a different bank or lender for refinancing. In this case, they will pay off the remaining balance of your previous auto loan on your behalf. Then, they will give you new loan terms.
When should you not refinance?
You should avoid refinancing when you are already almost seven years into your auto loan. The MAS rule will not allow you to extend your repayment period to beyond seven years, regardless of principal amount.
For instance, suppose you have a 7-year auto loan that is five years in and still not fully repaid. You have two years left to pay it back. If you decide to refinance, the MAS will only let you have two years for the refinancing (7 years minus 5 years since you took out your auto loan). In other words, either way you will have two years left to pay back the loan in full.
Refinancing may also lower your credit score temporarily. So if you want to keep your credit score high, refinancing is not such a good idea.
However, it can be reasonable if your budget is tight and will cause you problems paying down the original auto loan. Missing payments will have a worse impact on your credit score than refinancing. Besides, if you always pay your refinancing on time, your credit score will rise again.
Conclusion
Refinancing your auto loan can be a good thing if you encounter financial difficulty. Refinanced loans will make it more doable to pay back your auto loan and keep your car. Reputable lenders like Goldstar Credit can help you with the refinancing process.