If you already have a vehicle on finance, you might assume you have to remain with the same agreement until it ends. However, depending on your circumstances, it may be possible to refinance your existing car finance.

Car refinancing involves replacing your current finance agreement with a new one. The new finance is used to settle the outstanding balance with your existing lender, leaving you to make payments under the new agreement.

People consider refinancing for several reasons. You might want to explore a different interest rate, change the length of your agreement, reduce your monthly outgoings or finance the final balloon payment on a PCP agreement.

Refinancing will not be the right option for everyone, though. A lower monthly payment does not necessarily mean a lower overall cost, so it is important to compare the complete figures before making a decision.

What Does Refinancing Car Finance Mean?

Refinancing means taking out a new finance agreement to repay the settlement balance on your current agreement.

Your existing lender will provide a settlement figure showing how much is required to end the agreement early. If a new finance application is approved, the new lender will generally use the funds to settle the outstanding finance.

You then begin making the agreed monthly payments under the new arrangement.

The vehicle does not necessarily need to change. Car refinancing can allow you to keep your existing vehicle while changing how its remaining balance is financed.

All applications remain subject to the new lender’s criteria, affordability assessment, credit checks and approval.

Why Do People Refinance Their Cars?

There are several reasons why somebody might consider refinancing an existing vehicle.

To explore a different interest rate

Your credit profile or financial circumstances may have improved since you arranged the original agreement. Different lenders may also offer different rates and terms.

This does not guarantee that a better rate will be available, but reviewing the agreement can help establish whether a suitable alternative exists.

To reduce the monthly payment

Extending the remaining balance over a longer term may reduce the amount payable each month.

However, taking longer to repay the balance can increase the total amount of interest paid. It is therefore important to compare both the monthly payment and the total amount payable.

To change the agreement term

Your current agreement may no longer suit your circumstances. Refinancing could allow you to select a different repayment period, subject to the available products and lender criteria.

A shorter term will usually mean higher monthly payments but could reduce the overall interest charged. A longer term may make the monthly payment more manageable but could cost more overall.

To keep a car at the end of a PCP agreement

At the end of a Personal Contract Purchase agreement, you normally have the option to return the vehicle, part-exchange it or pay the optional final payment to keep it.

If you want to keep the car but do not want to pay the entire final balance in one lump sum, refinancing the balloon payment may be an option.

Can You Refinance a PCP Agreement?

It may be possible to refinance a car currently funded through Personal Contract Purchase.

To explore this, you will need to request a current settlement figure from your existing lender. This represents the amount required to repay the agreement and end it early.

A lender will then consider factors including:

  • The settlement balance
  • The vehicle’s age and mileage
  • The vehicle’s current value
  • Your income and expenditure
  • Your credit history
  • The required repayment term
  • Its own lending and affordability criteria

If the application is approved and the existing finance is settled, you will move onto the new agreement.

Before proceeding, compare the new arrangement against the existing PCP in full. Consider the interest rate, monthly payments, agreement term, fees and total amount payable, not only the headline monthly figure.

Can You Refinance a PCP Balloon Payment?

A large optional final payment, often called a balloon payment, is normally due if you decide to purchase the vehicle at the end of a PCP agreement.

If you want to keep the car but cannot—or would prefer not to—pay this amount from your savings, you may be able to refinance the final balance.

This could allow you to spread the cost across a new series of monthly payments. The available term and interest rate will depend on your circumstances, the vehicle and the lender’s criteria.

Before refinancing a balloon payment, it is worth considering all your available choices:

  • Pay the optional final payment and keep the car
  • Refinance the final payment
  • Return the vehicle, subject to the agreement’s conditions
  • Part-exchange the vehicle
  • Settle the agreement and sell the vehicle with the lender’s permission

The right option will depend on the vehicle’s value, your settlement figure, its condition and mileage, and whether you want to keep it for the longer term.

Can You Refinance Hire Purchase Car Finance?

Hire Purchase agreements may also be refinanced.

Under HP, the amount borrowed is normally repaid through fixed monthly payments. Once all required payments and any applicable purchase fee have been made, ownership transfers to you.

If you want to refinance before the agreement finishes, you will first need a settlement figure from the existing lender. A new lender can then assess whether it is prepared to finance that balance against the vehicle.

Refinancing an HP agreement might be considered if you want to change the repayment term or explore whether a different rate is available.

As with PCP refinancing, approval is not guaranteed and the complete cost of the proposed agreement should be compared with the cost of keeping the existing finance.

Could Refinancing Lower Your Monthly Payments?

Refinancing could result in a lower monthly payment, but this will depend on the new interest rate, remaining balance and repayment term.

There are generally two ways a monthly payment could be reduced:

  1. Securing a lower interest rate.
  2. Spreading the balance over a longer period.

A lower interest rate could reduce both the monthly payment and the overall interest charged. Extending the term can reduce the monthly payment but may increase the total cost because the balance is being repaid for longer.

For that reason, the lowest monthly payment is not automatically the best financial option.

When comparing agreements, look at:

  • The interest rate and APR
  • Number of monthly payments
  • Amount of each payment
  • Any deposit or advance payment
  • Fees and charges
  • Optional final payment, if applicable
  • Total amount payable
  • Total charge for credit

This provides a more meaningful comparison than looking at the monthly payment alone.

When Might Refinancing Be Worth Considering?

  • You may want to review your existing car finance if:
  • Your credit profile has improved
  • Your existing interest rate appears high
  • Your financial circumstances have changed
  • You want to alter the repayment term
  • Your PCP balloon payment is approaching
  • You want to keep your current vehicle
  • You arranged the original finance without comparing alternatives
  • Your current monthly payment no longer suits your budget

Reviewing an agreement does not mean refinancing will always be beneficial. In some cases, retaining the current agreement, changing the vehicle or settling the balance through another method may be more appropriate.

What Should You Check Before Refinancing?

Before making an application, obtain an up-to-date settlement figure from your current lender and review the terms of the existing agreement.

You should then consider the following.

Is the new rate actually lower?

Compare the APR and total charge for credit, not only the advertised or flat interest rate.

Will the overall cost increase?

A smaller monthly payment spread over a longer term can result in a higher total amount payable.

Are there any settlement costs or fees?

Check whether any fees or charges apply when settling the existing agreement or arranging the replacement finance.

Is the car worth enough?

The vehicle’s current market value will be considered alongside the settlement balance. If the outstanding finance is considerably higher than the car’s value, refinancing options may be more limited.

How long do you intend to keep the vehicle?

Taking out another multi-year agreement may not be appropriate if you expect to change the vehicle soon.

What Information Will You Need?

To review your refinancing options, you will typically need:

  • Vehicle registration
  • Current mileage
  • Current lender
  • Agreement type
  • Current monthly payment
  • Current settlement figure
  • Remaining agreement term
  • Employment and income details
  • Address history
  • Bank details

Having an accurate settlement figure is particularly important because this establishes the amount that any replacement finance would need to cover.

Does Refinancing Affect Your Credit Score?

Applying for car finance can involve a credit search.

A full application may leave a hard search on your credit file. Multiple applications within a short period could affect how other lenders view your credit profile.

You should check whether an initial eligibility assessment uses a soft or hard search before providing permission. A soft search is not normally visible to other lenders, whereas a hard search is recorded on your credit file.

Taking out a new agreement may initially affect your credit profile. Maintaining payments in full and on time remains important throughout the term.

Can You Refinance a Car with Negative Equity?

Negative equity occurs when the settlement figure is higher than the vehicle’s current market value.

For example, if your finance settlement is £30,000 but the vehicle is worth £27,000, there is a £3,000 difference.

This can make refinancing more difficult because the new lender must consider the amount being borrowed in relation to the vehicle’s value. You may need to contribute towards the difference, although the available options will depend on the lender and your circumstances.

You should not assume that negative equity can simply be added to another agreement. Doing so can increase the amount borrowed and may leave you owing more than the replacement vehicle is worth.

How Ultra Vita Can Help

At Ultra Vita, we can review your existing car finance and help you understand the options that may be available.

We will consider your current agreement, settlement balance, vehicle and objectives before exploring suitable finance options through our lender network.

Our aim is not simply to find the lowest-looking monthly payment. We help you compare the important figures so you can understand the term, interest rate, total amount payable and any final payment before deciding whether to proceed.

If refinancing does not appear suitable, we can also discuss other options, including keeping the current agreement, settling the vehicle, part-exchanging it or sourcing and funding a replacement car.

Request a Car Finance Review

Already have a vehicle on PCP or HP?

Send Ultra Vita your vehicle registration, current monthly payment and approximate settlement figure. We can review the information and explore whether an alternative finance option may be available.

Request a car finance review

Frequently Asked Questions

Can I refinance my car with the same lender?

You can ask your existing lender whether it offers alternative arrangements, but refinancing is commonly provided through a different lender. Available options will depend on lender policy and your circumstances.

How soon can I refinance a car?

There is no single timeframe that applies to every agreement. Lenders may impose minimum requirements regarding how long the existing finance has been running, how much remains outstanding and the age or value of the vehicle.

Can I refinance my car if my credit score has improved?

An improved credit profile may help you access different terms, but it does not guarantee acceptance or a lower interest rate. Lenders will assess your full circumstances and affordability.

Can I refinance a car with poor credit?

Options may still be available, but the interest rate could be higher. Refinancing at a higher rate may increase the total cost, so the figures need to be reviewed carefully.

Can refinancing reduce my monthly payment?

It may reduce the monthly payment if a lower interest rate or longer term is available. A longer term can increase the total amount payable, even when the monthly payment is lower.

Can I refinance my PCP and keep the same car?

Potentially, yes. The replacement finance would be used to settle the existing PCP, allowing you to retain the vehicle under the new arrangement, subject to lender approval.

Do I own the car after refinancing?

This depends on the type and terms of the new agreement. Under Hire Purchase, ownership normally transfers after all required payments and any applicable purchase fee have been made. Until then, the lender remains the legal owner.

Riccardo Leighton trading as Ultra Vita is a credit broker, not a lender. We can introduce you to a limited number of lenders and may receive a commission. Finance is subject to status, affordability, lender criteria and terms and conditions. We cannot guarantee acceptance or that refinancing will reduce either your monthly payments or the total amount payable.