Can you refinance an EV loan later? A guide for New Zealand drivers

Electric vehicles are an increasingly popular option for New Zealand drivers. Many people buy their electric vehicles, or EVs, with a car loan. But over time, financial circumstances and lending options can change, and you might wonder about refinancing your EV loan. Here are a few things to think about, to work out whether it makes sense for you.

What is EV loan refinancing?

Refinancing refers to replacing your existing EV loan with a new loan. This is different from restructuring or topping up a loan because you’re usually moving to a new lender. People might refinance because a new loan option becomes available or when their circumstances change and give them access to loans they might not have been able to get previously.

It’s worth noting at the outset that if you’re thinking about refinancing because you’re having trouble paying your loan, a good first step is to talk to your existing lender. They may be able to help with a change to your loan term to make it more manageable.

Can you refinance an EV loan in New Zealand?

Yes, most EV loans can be refinanced, subject to the approval of the lender. Things that affect your ability to refinance include your current loan balance, the value of your vehicle and your credit profile.

In general, lenders approach EV loans in much the same way as any other vehicle loan – although sometimes it’s possible to access lower or no-interest options for EVs from lenders who want to encourage “green” investments.

How does EV loan refinancing work?

Step 1: Check your current loan details

It’s important to check the status of your current loan. What interest rate are you paying, what balance do you have remaining, and what term were you paying it off over? This information will help you assess your options more effectively. You’ll also need to know what early repayment or break fees might be charged if you decide to refinance.

Step 2: Assess your vehicle’s current value

Then, you’ll need to work out what your vehicle is currently worth. You can often get an idea by looking at what is available on the market. Vehicles tend to depreciate most quickly early in their lives. If you recently bought your vehicle new, it could be that it has dropped in value below your loan amount. This may affect your ability to refinance.

Step 3: Review your financial situation

Next, look at your income and expenses, and your credit score. If these have improved since you took out your EV loan, you may find you have more lending options available to you.

Step 4: Compare refinancing options

We can help you look at what options might be available to you. We’ll discuss how your current lending compares to what else might be on offer, and how to find an appropriate solution, whether that’s secured or unsecured lending.

Step 5: Apply for a new loan

If you decide to go ahead with a refinance, you’ll need to provide documentation that is similar to what you used in your initial application. You’ll need to show things like your identification and proof of income, and details of your vehicle if the loan will be secured against it.

Step 6: Pay off existing loan

The new lender will then pay off the existing loan and replace it with a new one.

Step 7: Begin new repayment plan

You’ll start making payments on your new loan. This will probably have updated terms, possibly a change to the interest rate and maybe a new repayment schedule.

When does refinancing an EV loan make sense?

Whether it makes sense to refinance will depend a lot on your individual circumstances. Here are some scenarios where it might be an option.

Interest rates have dropped 

If you’re on a fixed interest rate that is a lot higher than you could get from lenders now, it might make sense to consider a switch. Note that there may be fees associated with breaking a fixed term, and these may reduce the savings on offer.

Your credit score has improved 

If you took out a loan when you had poor credit, an improvement in your score may mean more options are available to you, and potentially better interest rates. We can help you look at the options.

You need lower repayments 

Refinancing onto a longer term may be an option to reduce your repayments, although it is likely to mean a higher total cost for your loan overall. In some cases, it may be a good idea to talk to your existing lender about your options before you change.

You want to consolidate debt 

Sometimes people want to roll their debts into one new loan. This can be easier to manage and may save money if the new interest rate is better. It should be done carefully, though. We can advise you on this.

When is refinancing not a good idea?

Refinancing is not always the best option for everyone. Watch out for these scenarios:

• Early repayment fees: If the amount you’ll have to pay in early repayment fees outweighs the savings you could potentially make, it’s unlikely to be a good idea.
• Your vehicle has dropped in value: If you’re in negative equity, it may be hard to refinance with another lender.
• Your financial situation has worsened: If your credit score has dropped, or your income has fallen, you may find it trickier to get a loan to refinance.
• You’re going to pay more: If your refinance means a longer loan term, you may end up paying more overall.

EV-specific considerations when refinancing

There are a few unique things about EVs that may affect their value and the refinance process.

• Battery life and warranty coverage: EVs with a better “state of health” may have a higher resale value, which may give a lender more comfort about the loan.
• EV depreciation vs petrol vehicles: EVs may depreciate more quickly than petrol cars if there are significant advances in technology.
• Changes in government incentives or market demand: The value of EVs can be driven significantly by external factors, such as the now-defunct government subsidy and concern about fuel availability.
  
  

Costs to consider when refinancing

Watch out for these fees, which may alter your calculations of whether refinancing is worth it.

• Early repayment (break) fees: Many lenders will charge you a fee to repay your loan early. Ensure you know what this is, and that it’s not more than what you save with your new loan.
• New loan establishment fees: You’ll often pay a fee for the establishment of a new loan.
• Interest rate differences: Different lenders charge different interest rates.
• Total cost comparison (not just repayments): Consider how much the total cost of your loan might compare – are you on track to pay less overall if you refinance?

How to improve your chances of refinancing approval?

You can improve your chances of having your refinance application approved in a few ways.

• Improve your credit score: A higher credit score gives lenders reassurance that you’re more likely to repay what you borrow.
• Reduce existing debt levels: If you don’t have a lot of other personal lending type debt, it could improve your chances.
• Maintain a stable income: Income is very important to lenders. The more you can show a pattern of stable income, the better.
• Ensure the loan-to-value ratio is reasonable: It helps if the vehicle is worth more than you’re asking to borrow. This is particularly the case if you’re applying for a secured loan, where the lender will register an interest in an asset – probably your vehicle – as security in case you don’t make repayments.
  
  

Alternatives to refinancing an EV loan

Refinancing isn’t your only option. Here are some other things to consider.

• Making extra repayments on your current loan: You may be able to pay off your loan more quickly and save money if you make extra payments. Just be sure to check what fees might be associated with this.
• Negotiating with your current lender: Your lender may be willing to restructure your loan or look at other options for you. This is particularly the case if you’re experiencing hardship.
• Adjusting repayment frequency: Changing the timing of your loan payments can be an option to clear your loan more quickly, or to fit the payments more comfortably into your budget.

FAQs

How soon can I refinance an EV loan in NZ?

There is no definitive rule. This will depend on the terms of your existing loan.

Does refinancing affect my credit score?

Applying for a loan, including refinancing, can affect your credit score initially. Over time, as you make the repayments, it should improve.

Can I refinance if I have negative equity?

You may be able to. We could help you look at your options.

Is refinancing worth it for small loan balances?

It may be – it will depend on your individual circumstances.

Want to talk about your options?

If you’ve been thinking about refinancing your EV loan, get in touch with us. The better finance™️ team can help with any questions you might have about personal lending.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.