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I would like to borrow
To pay back over
3.5 years

Zuto is a credit broker, not a lender. Our rates start from 7.9% APR. The rate you are offered will depend on your individual circumstances. Representative Example: Borrowing £7,000 over 48 months with a representative APR of 19.3%, the amount payable would be £205 a month, with a total cost of credit of £2,831 and a total amount payable of £9,831.

Can you refinance your car loan?

There are a number of reasons why you might want to rethink your car finance. Perhaps you believe you can get a better deal now than when you took out the original loan. Maybe you want to reduce your monthly payments, or you wish to keep the car beyond the end of an existing agreement. You may therefore be asking ‘can you refinance your car loan?’

The short answer is yes, you can refinance your car. Like all financial commitments, you should weigh up the pros and cons very carefully. The following guide may help you make up your mind.

Reasons to refinance

Saving money

You may be able to secure a new deal at a better rate of interest than your current finance package. This could lower your monthly payments, as well as the total sum payable.

Car ownership

If your current deal is a hire purchase (HP) or personal contract plan (PCP) agreement, then you might be able to own the car sooner if you take out a loan to settle the finance. You may also take out a loan to finance the lump sum, or ‘balloon payment’, due at the end of a PCP agreement if you want to keep the vehicle. This is therefore another form of car refinancing, and is an effective way to spread the cost of the balloon payment.

Factors to consider

Time period

If you take out the new finance over a longer period of time, the total amount payable may increase rather than decrease. Check carefully what you will pay in total before you take out a new agreement.

Secured vs unsecured loans

If you take out a loan which is secured on the car, then you still do not fully own the car until the loan is completely settled, because the lender can claim ownership of the car if payments are not made. With an unsecured loan, you would become the car’s owner from the outset.

Extra interest

If you refinance your car at the end of a PCP deal, then you will carry on paying interest.

Negative equity

A car’s value tends to fall quite quickly after purchase. If the value of the vehicle depreciates more quickly than you make payments, then you may owe more on the car than it is worth. This often happens with car finance, and resolves over time, but if refinancing puts you into negative equity then this may affect the interest rates you’re offered. It may also have some bearing on how willing lenders are to offer you a deal at all.

How does refinancing work?

The new lender would provide the money to enable you to pay off the existing finance to the original lender, and you would enter into a contract with the new lender.

Do I have to change lender?

Many people who refinance their car loan do sign up with a different lender, but you may not need to do this. You may be able to secure a new deal with your existing lender. To do this, you can contact the lender directly, or use a car loan broker who may negotiate a new deal on your behalf.

Would refinancing affect my credit score?

It’s wise to consider your credit rating, as it will determine your chances of securing future finance. As long as you have kept up with payments on the original finance agreement, and continue to do so with the new agreement, your credit score will be protected. In fact, if you have a good payment record with the original finance provider, this might even help you secure a better rate of interest when refinancing.

Other related FAQs

Looking for more related content to this? We’ve picked a selection of related topics that you may find helpful

Car finance is a loan – but it’s one that’s often secured against the vehicle you’ve decided you want. As such, it’s often viewed a little differently to a personal loan – which is not secured against anything.

Car loans can be secured or unsecured, depending on the type of agreement you get.

Your ‘settlement figure’ is the amount that the car finance company require to pay off your finance in full. Since this changes as interest is added and as payments are made, requested settlement figures are usually only valid for a short time.

Car loans for used cars vary in length. Terms are typically between 12 and 60 months.

Don’t worry if you can’t remember who your car finance is with. You can find out by checking your paperwork, looking at who you make your payment to through your bank, or calling the dealership you bought your car from.

The number of years banks will finance a used car for depends on the particular agreement you enter into. Usually, agreements are available for terms of between 12 and 60 months.

Lying on a car loan application is a form of fraud and is illegal. If you’re found to have done this, you could face prosecution and you may find it harder to get credit in the future.

Car finance agreements don’t tend to include insurance as standard, but there are packages available that do.

In general, you cannot simply transfer a car finance agreement to someone else. However, there may be other options available to you that meet your needs.

The maximum age of used cars eligible for finance agreements tends to be 10 years, although there are exceptions to this.