Replacing Car Loans: Beware of Costs

The interest rates on loans are currently cheaper than ever, so understandably many borrowers wonder whether it would not be worthwhile to convert their old loans into cheaper installment loans. This approach would also be interesting in the area of ​​auto financing. In order to avoid stumbling over cost traps, it is important to pay attention to a few points when replacing car loans.

Important information

  • Car loans are earmarked loans and therefore often require security.
  • Car loans may sometimes require vehicle registration as collateral – which could make it more difficult for you to cancel your loan early.
  • Depending on the contract, special repayments are not possible or only subject to a fee.

The question of security in car loan

The question of security in car loan

Anyone who takes out a car loan, this type of financing usually earmarked. This means that the loan amount is not made available by the lending bank, but the loan is earmarked. However, such a credit tied to a particular purpose often requires security from the lender.

For department store loans, this is usually the product for which the loan was taken. In the case of car finance, the security is then in most cases the car that is to be paid for via the loan. This means that the vehicle owner then becomes the owner of the car, but the owner is the lending bank, which at the same time also collects the vehicle registration as collateral.

Of course, this is not a problem in times of hassle-free repayment, but it could be a problem if you have to prematurely redeem a car loan, for example by getting a new loan or a special repayment from your own pocket.

Because the vehicle owner, and thus the bank, of course, must agree to the replacement of the loan issued and then promptly send the vehicle registration card to the new owner.

The pitfall could be there: Since the vehicle owner is not at the same time the vehicle owner, the car itself can not be readily indicated as security for the transfer loan.

In the worst case, this could at the same time be a cost trap: the new credit suddenly becomes more expensive than expected, since it is received without security but at the same time earmarked.

Cost trap special repayment

Cost trap special repayment

In order to replace a car finance with a new, cheaper car loan, a special repayment of the previous loan must be carried out. However, this depends on what was agreed in the original loan agreement. Depending on the loan, a complete special repayment can be processed free of charge and also quite unbureaucratically. But that does not always have to be the case. Therefore, should be paid to the implementation of the replacement of the previous car financing on what is in the car loan agreement.

If a full special repayment to replace the existing loan is not possible or only at cost, the question is whether replacing the auto financing in this case really worthwhile.



Who pays attention to both points, the security for the new car loan and the special amortization option for the replacement of the previous car financing, which can have quite a lucky touch with his approach.

Here it depends on what was agreed when borrowing in the contract, what is right and where the journey in the replacement of a car finance should go. When concluding a loan agreement, it is always advisable to think about the end that could possibly be triggered by a replacement with a cheaper loan.