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Should You Refinance To Settle Your Car Loan / Personal Loan Early?

Updated 23 May 2016 – By Loanstreet


Two questions commonly asked by people are “Should I refinance my house to fully settle my car / personal loan?” and “How much rebate will I get from early settlement?”

When a personal / car / vehicle loan is settled early, a rebate is usually given. Contrary to popular belief, the rebate amount does not differ from bank to bank, but is calculated based on a standard formula known as the Rule of 78. Using Loanstreet’s personal loan settlement calculator, you can now know your settlement and rebate amount. More importantly, it tells you the effective interest rate (equivalent to FD & housing loan interest rates) that you will save from settling early so you can decide whether or not full settlement is advisable.

There are usually 2 groups of people who want to fully settle their car / personal loans.

  • People who have spare cash
  • People who can do refinancing on their house (thus getting spare cash)

For people in the first group, the key to the answer is to compare the effective interest rate saved via full settlement against FD interest rates, or an investment vehicle of the same nature. For example, if you can save an effective interest rate of 5% p.a. versus an FD rate of 3.5% p.a., you should settle your loan early.

For people in the second group to know whether or not to refinance your house , you have to compare the effective interest rate saved against the housing loan interest rate that you will get. If you save more than your refinancing interest rate, go for it. Do keep in mind that unless taking Zero Entry Cost package, refinancing will incur additional entry costs such as legal fees, stamp duty, and valuation fees.

Conclusion

To know whether to settle your car / personal loans early, you must know the effective interest rate that you will save and compare it against FD or housing loan interest rates.

Use our Personal loan settlement calculator to know the settlement amount, rebate amount, and effective interest rate saved. Then, use our Home Loan Comparison tool to compare interest rates for refinancing. The answer will become obvious on its own.

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