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What is car refinancing?

Car refinancing refers to when you take out a new finance agreement to pay the outstanding amount left on your current loan under different terms. This can be helpful if your circumstances have changed since originally applying. In this article, we’ve explained whether you can refinance your car and why you might want to.

Can you refinance a car?

If you’re currently paying off a car loan, you might be able to refinance the agreement. This, essentially, allows you to reconfigure the structure and terms of the existing loan, usually to make repayments more affordable and convenient. We work with a wide panel of lenders across the country, to provide you with a pragmatic refinancing solution.

Whether your PCP loan is coming to an end and you’re thinking of refinancing the balloon payment on your car to spread out the final cost, or your circumstances have changed part-way through your hire purchase finance and you need to re-evaluate your spending, car refinancing can be a practical solution.

To find out if you can refinance your car loan, get in touch with our team today to discuss your existing agreement and next steps.

Why refinance a car?

There are plenty of reasons why you might want to refinance a car, depending on a variety of factors including sudden changes to your finances or personal circumstances. We’ve outlined some of the main motivators:

  1. Reduce your interest rate

If your credit score has improved since first applying for car finance, you may be eligible for a loan with lower interest rates. Refinancing a car under new loan terms might mean paying less in interest and reducing the overall amount payable.

  1. Lower your monthly repayments

If you’re struggling to make your car finance repayments under the current terms of your loan agreement, refinancing could be a solution. Refinancing a car gives you the opportunity to change your current agreement for one with lower monthly payments over a longer period. If you choose to spread your loan over a longer period, though, be aware that additional interest may mean you end up paying more overall.

  1. Keep your car

If you have a PCP car finance agreement, you’ll be offered the opportunity to pay a balloon fee at the end of the term to own the car outright; otherwise, you’ll need to return the car to the dealership. Many drivers choose to refinance the balloon payment into manageable monthly instalments, so that they can own the car outright without having to pay the sum as a one-off cost. This will result in extending the overall loan period which will lead to higher overall cost including interest.

Car refinancing with bad credit

Because we work with such a varied panel of lenders, you can often refinance your vehicle no matter your circumstances – even if you’re applying for car finance with bad credit. Contact our team to discuss your situation, and they’ll guide you through the best course of action.

Does refinancing a car loan impact your credit score?

Applying for finance through Zuto doesn’t impact your credit score, as we only perform a soft search initially to assess your affordability. This gives you a good idea about whether you’ll be accepted for finance and how much you’re likely to be able to borrow.

Once you’re happy with your quote and ready to proceed, we’ll then conduct a hard search on your credit file. After a hard search, you may notice a slight drop on your credit score, but this is usually only temporary. However, if you’re refused car finance, multiple re-applications can then start to negatively affect your credit score.

How many times can you refinance a car?

Technically, you can refinance your car as many times as you like, which can be useful as your circumstances change throughout your loan term. However, as previously highlighted, it’s important to consider the impact of too many finance applications on your credit score.

Refinancing a car with negative equity

Negative equity happens when your car is worth less than the amount you still owe in loan repayments. Often, this is because the vehicle has depreciated more quickly than expected.

However, you can still refinance your car, even if it’s in negative equity, although the new agreement will be based on your outstanding amount rather than the vehicle’s value. Get in touch with our team to discuss your options, and we’ll find you the best solution among our varied panel of lenders.

If you’re considering refinancing your current car loan, check out our car finance calculator to get an idea of how much you may be able to borrow. Or, for even more useful advice, check out our range of helpful car finance aftercare guides.

Written by

Mike Barlow

Content Manager

Mike has worked at Zuto since 2018 and uses his experience within the industry to help customers understand the ins and outs of car finance.

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