Does refinancing a car loan increase borrowing power?

It can, if the new repayment is lower. Banks take your monthly commitments off your income before working out the mortgage, so a smaller car repayment can free up borrowing power.

Will refinancing my car loan hurt my credit before a mortgage?

A new application adds an enquiry to your credit file, and some lenders weigh recent enquiries. It's worth timing it carefully and checking it's worth it first.

Should I use my savings to pay down my car loan?

Sometimes. It can lift borrowing power, but it also shrinks your deposit, which can mean more mortgage insurance. Run both scenarios first.

Are there costs to refinance a car loan?

There can be, like an early payout fee on the old loan and setup costs on the new one. Stretching the term also means paying interest for longer.

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Should I refinance my car loan before I apply for a mortgage?

Bayley Clarke · Mortgage broker on the road · Last checked 11 November 2026 · 2 min read

The short answer

It depends how it's going to move the needle on your borrowing capacity. If refinancing the car loan brings the monthly repayment down enough, it can lift what you can borrow for your home, and I've helped a customer do exactly that.

Banks don't look at the car loan balance so much as the repayment. A lower repayment means more of your income is free to go towards a mortgage. But it all gets factored in to whether the juice is worth the squeeze, and that's part of the numbers I run before we touch anything.

The 60 second version, filmed from the driver's seat. The rest of this page is the detail underneath it.

How it worked for one customer

We used some of their cash to pay down the car loan, then refinanced what was left at the reduced amount over a new term. Smaller balance, spread over a fresh period of time, and the ongoing repayments came down a lot.

As a result, it improved their borrowing capacity for the home they were buying to live in. When a bank works out how much you can borrow, every monthly commitment comes off the top of your income before they get to the mortgage. Shrink that car loan repayment and there's more room left over for the home loan. Sometimes you'll get better terms on the car loan while you're at it, too.

When it's worth doing, and when it isn't

It's not always a win. Refinancing a car loan can come with an early payout fee on the old loan and setup costs on the new one, and stretching the term out means paying interest for longer. Using cash to pay it down also takes money away from your deposit, which can cost you more in mortgage insurance than you gain in borrowing power.

There's also timing. A new car loan application shows up as a fresh enquiry on your credit file right before you apply for a mortgage, and some lenders weigh recent enquiries. So I run the numbers both ways first. What can you borrow now, what can you borrow after, and what does it cost to get there? If it makes sense, we'll do it. If it doesn't, well, we won't.

The honest bit: don't do it before we've run the numbers

The order matters here. Refinance the car loan off your own bat and you might use up the deposit, add an enquiry, or end up with a repayment that barely changes.

Have the conversation first. It takes one run through the numbers to see whether it moves your borrowing power enough to bother.

Wondering if your car loan is holding you back?

A 30 minute call. We run your borrowing power with the car loan as it is, then with it paid down or refinanced, so you can see what's worth doing.

Book a 30 minute call Call 0437 189 939

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