Can I refinance my financed car?

Mia Bowman, Customer Understanding Coordinator, Friday, 26 July 2024
Updated: Friday, 26 July 2024

Refinancing a car involves taking out a new loan to pay off an existing car finance agreement. Some people might refinance to try to secure better interest rates and potentially save money by reducing monthly payments.

However, it may not be a suitable option for everyone. This guide explores car refinancing, including how it works and some potential impacts it could have on your credit score.

Refinancing a car involves taking out a new loan to pay off an existing car finance agreement. Some people might refinance to try to secure better interest rates and potentially save money by reducing monthly payments.

However, it may not be a suitable option for everyone. This guide explores car refinancing, including how it works and some potential impacts it could have on your credit score.

What is car refinancing?

What is car refinancing?

When you refinance a car, you take out a new car loan to pay off your existing one. The goal of refinancing is often to get a better interest rate or to reduce your monthly payments. This could free up money for other purchases or make car finance more affordable if your financial circumstances have changed.

When you refinance a car, you take out a new car loan to pay off your existing one. The goal of refinancing is often to get a better interest rate or to reduce your monthly payments.

This could free up money for other purchases or make car finance more affordable if your financial circumstances have changed.

Refinancing may be done with a new lender, but your current car finance provider could also offer this service. However, not all lenders offer car refinancing.

The new refinancing loan can either be secured against the car or unsecured. Securing the loan against your vehicle means it may be repossessed if you can’t keep up with your payments.

Does Moneybarn offer car refinance deals?

No, we don’t offer refinancing deals. Repeated refinancing can cause credit issues and create long-term debt challenges.

Support is available if you are struggling to make monthly payments on your existing agreement. Please contact our Customer Services Team, and we will discuss your options to help you understand what’s available to you.

You can read more about the support available if you’re experiencing financial difficulties.

How do I refinance my car?

Refinancing may be done with a new lender, but your current car finance provider could also offer this service. However, not all lenders offer car refinancing.

The new refinancing loan can either be secured against the car or unsecured. Securing the loan against your vehicle means it may be repossessed if you can’t keep up with your payments.

Does Moneybarn offer car refinance deals?

No, we don’t offer refinancing deals. Repeated refinancing can cause credit issues and create long-term debt challenges.

Support is available if you are struggling to make monthly payments on your existing agreement. Please contact our Customer Services Team, and we will discuss your options to help you understand what’s available to you.

You can read more about the support available if you’re experiencing financial difficulties.

How do I refinance my car?

Before you apply to refinance your car, checking your credit score can help you to understand your chances of approval. It’s also important to know the terms of your current finance agreement, as there may be a fee for settling it early or refinancing it.

You might have a Personal Contract Purchase (PCP), Hire Purchase (HP), or Conditional Sale (CS) agreement and wonder if you can refinance it. Though you can usually refinance one of these agreements, it’s always best to check with your lender.

Every lender is different, and refinance deals often have different fees, interest rates, and other terms attached, such as mileage allowances.

Once you find a deal you’re interested in, you apply to that lender. They may ask for documents like your driving licence, vehicle registration, and proof of income and address.

After you sign the agreement, your new lender can pay off your existing loan and set up your new repayment plan.

Choose your car wisely

Before you apply to refinance your car, checking your credit score can help you to understand your chances of approval. It’s also important to know the terms of your current finance agreement, as there may be a fee for settling it early or refinancing it.

You might have a Personal Contract Purchase (PCP), Hire Purchase (HP), or Conditional Sale (CS) agreement and wonder if you can refinance it. Though you can usually refinance one of these agreements, it’s always best to check with your lender.

Choose your car wisely

Every lender is different, and refinance deals often have different fees, interest rates, and other terms attached, such as mileage allowances.

Once you find a deal you’re interested in, you apply to that lender. They may ask for documents like your driving licence, vehicle registration, and proof of income and address.

After you sign the agreement, your new lender can pay off your existing loan and set up your new repayment plan.

Can you refinance a car lease?

No, you usually can’t refinance a car leased on a Personal Contract Hire (PCH) deal. You might be able to extend your current lease to keep using the same car, but typically, refinancing a car lease isn’t an option.

This is because in a lease agreement, you don’t legally own the car, so your monthly payments cover your use of the car rather than paying off a loan balance.

When can I apply to refinance my car?

You can apply to refinance your car at any time, but new lenders may require you to have had your current deal for a minimum period, e.g. 12 months, before you can refinance.

Will refinancing my car affect my credit score?

Can you refinance a car lease?

No, you usually can’t refinance a car leased on a Personal Contract Hire (PCH) deal. You might be able to extend your current lease to keep using the same car, but typically, refinancing a car lease isn’t an option.

This is because in a lease agreement, you don’t legally own the car, so your monthly payments cover your use of the car rather than paying off a loan balance.

When can I apply to refinance my car?

You can apply to refinance your car at any time, but new lenders may require you to have had your current deal for a minimum period, e.g. 12 months, before you can refinance.

Will refinancing my car affect my credit score?

Refinancing a car loan may cause your credit score to drop in the short term. This is because applying for a new finance agreement involves a hard search on your credit file. It also means a new line of credit will be added to your credit file.

Refinancing a car loan may cause your credit score to drop in the short term. 

However, once you start making payments on your refinanced agreement, your credit score may improve over time. This can make it easier to get approved for credit in the future and may give you access to better interest rates.

Read our guide to understand more about how financing a car improves your credit score over time.

What happens if I can't afford my refinanced car loan?

Before you apply for any type of credit, it’s important to consider whether you can comfortably afford it.

If you refinance your car to a finance agreement that’s secured against the vehicle, the car may be repossessed if you can’t make your monthly payments.

With a personal loan (sometimes called an unsecured car loan), if you can’t repay, you may be sent a default notice. The lender may then take further action to recover the money owed. This may include applying for a County Court Judgement (CCJ) and passing the debt to a debt collection agency.

How does refinancing differ from trading in?

This is because applying for a new finance agreement involves a hard search on your credit file. It also means a new line of credit will be added to your credit file.

However, once you start making payments on your refinanced agreement, your credit score may improve over time. This can make it easier to get approved for credit in the future and may give you access to better interest rates.

Read our guide to understand more about how financing a car improves your credit score over time.

What happens if I can't afford my refinanced car loan?

Before you apply for any type of credit, it’s important to consider whether you can comfortably afford it.

If you refinance your car to a finance agreement that’s secured against the vehicle, the car may be repossessed if you can’t make your monthly payments.

With a personal loan (sometimes called an unsecured car loan), if you can’t repay, you may be sent a default notice. The lender may then take further action to recover the money owed. This may include applying for a County Court Judgement (CCJ) and passing the debt to a debt collection agency.

How does refinancing differ from trading in?

One

Refinancing

One

Refinancing

You might consider refinancing if you want to keep your current car and lower your monthly payments. If your credit score has improved, you could get a better APR than your current agreement, which might save you money over the loan period.

If you want to refinance your car with bad credit, getting approved might be tricky. There’s no guarantee that your new refinanced deal will have a lower interest rate than your current one. Also, taking out a loan to pay off your existing one could mean paying more overall, due to the amount of interest you’ll be paying.

You might consider refinancing if you want to keep your current car and lower your monthly payments. If your credit score has improved, you could get a better APR than your current agreement, which might save you money over the loan period.

If you want to refinance your car with bad credit, getting approved might be tricky. There’s no guarantee that your new refinanced deal will have a lower interest rate than your current one. Also, taking out a loan to pay off your existing one could mean paying more overall, due to the amount of interest you’ll be paying.

Two

Trading in

Two

Trading in

Alternatively, if you want to change cars, you could trade in your current car as a deposit on your next one. A larger deposit can reduce the total amount you need to finance, potentially leading to lower monthly costs or a shorter loan term.

However, this is only possible if your car has positive equity (meaning it’s worth more than what you still owe on the finance). Negative equity is when your car’s value is less than the remaining finance amount. You can find more information on this in our guide to negative equity in car finance.

Learn more in our full guide on changing your car with outstanding finance.

Alternatively, if you want to change cars, you could trade in your current car as a deposit on your next one. A larger deposit can reduce the total amount you need to finance, potentially leading to lower monthly costs or a shorter loan term.

However, this is only possible if your car has positive equity (meaning it’s worth more than what you still owe on the finance). Negative equity is when your car’s value is less than the remaining finance amount. You can find more information on this in our guide to negative equity in car finance.

Learn more in our full guide on changing your car with outstanding finance.

Looking to upgrade? We could help!

Looking to upgrade? We could help!

If you want to change cars, we might be able to help. While we don’t offer refinancing, we can help if you’re looking to trade in your current car and get a new one.

Our CS agreement means you’ll own the car once you make your final payment.

We specialise in bad credit car finance, so we can help you even if you have a poor credit score, you have no credit history, you’ve had a CCJ or IVA, or other lenders have turned you down.

As one of the UK’s largest providers of specialist car finance, we’ve helped thousands of people across the UK find a better road ahead.

Use our car finance calculator to see what your monthly payments could be with us.

Or, if you’re ready, get a quote in less than 5 minutes and find out how much you could borrow for your new car.

Representative 30.7% APR.

How our car finance works

Conditional Sale car finance diagram

If you want to change cars, we might be able to help. While we don’t offer refinancing, we can help if you’re looking to trade in your current car and get a new one.

Our CS agreement means you’ll own the car once you make your final payment.

We specialise in bad credit car finance, so we can help you even if you have a poor credit score, you have no credit history, you’ve had a CCJ or IVA, or other lenders have turned you down.

How our car finance works

Conditional Sale car finance diagram

As one of the UK’s largest providers of specialist car finance, we’ve helped thousands of people across the UK find a better road ahead.

Use our car finance calculator to see what your monthly payments could be with us.

Or, if you’re ready, get a quote in less than 5 minutes and find out how much you could borrow for your new car.

Representative 30.7% APR.

 
Mia Bowman, Customer Understanding Coordinator
Bringing you guides to help with your vehicle finance agreement and showcasing customers we’ve helped.
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