Can I extend my car finance repayment term?

Time flies, except maybe when it comes to your car finance agreement.
 
With repayment terms lasting anywhere from one to six years, it’s likely to be one of the most serious short-term commitments you make (with no diamond ring involved!)
 
Unfortunately, a lot can change over the course of your loan. Life happens; fast-forward two or three years and a deal that was a great fit when you signed your agreement can suddenly feel more like that sweater you shrunk in the wash.
 
No matter the reason why you might need to reduce your monthly repayments, extending your term could be a solution. But is it the right one for you?
 
Let’s take a closer look…

Understanding your car finance agreement

It’s more than just a piece of paper.
 
We know it’s tempting to skip the small print (we have to admit, we love getting digging down into the details), but it’s always worth taking the time to get to grips with the ins and outs of your car finance agreement – ideally before you sign on the dotted line!  
 
Your agreement should tell you:

• The length of your loan term
• Your interest rate
• Your monthly payment amount
• Your total amount payable

It should also detail any restrictions such as an annual mileage limit as well as a list of the modifications you can and can’t make.
 
These are the terms you commit to when you sign – and the rules you agree to abide by for several years.
 
The more familiar you are with your agreement, the easier it’ll be to spot what needs to change to make it a better fit for your current circumstances.

What factors can affect the possibility of extending my term?

We need to start with an important disclaimer: extending a loan isn’t always an option.
 
A range of factors can affect whether you can elongate your loan or not, from the terms and conditions of your original agreement to your payment history.
 
It might help to think of applying for a loan extension as a bit like trying to secure your original finance deal. Just like that, your approval will depend on the lender’s individual criteria, your credit score, and your affordability.
 
Your lender might also have a limit on the maximum loan length they can offer – once you hit that limit, you won’t be able to extend any further.

What are the benefits and drawbacks of extending my car finance term?

As with anything financial, there are several pros and cons to consider.
 
Let’s break down the reasons for and against extending your car finance term.

Benefits of extending car finance repayments

You could lower your monthly repayments

By extending your loan term, you’ll be spreading your outstanding balance a little thinner. Instead of splitting £5,000 over two years with monthly payments of £208 plus interest, if you switch to a five-year loan those payments could go down to as little as £83 plus interest.

You’ll have more time to pay back the loan

Sometimes it’s better to be the tortoise, not the hare. If your expenses are spiralling and your current car finance payment is eating into your essential spending, elongating your loan term could be a better option than struggling through or even losing your wheels completely. With more time, you might find the breathing space you need to get your finances back on track.

You don’t have to switch lender

If you’ve got a good relationship with your lender and don’t want to undergo the hassle of switching to someone new, you might benefit from the convenience of extending your loan with your existing lender rather than refinancing.

Drawbacks of extending car finance repayments

You could pay more overall

While you might save on your monthly payments with a longer loan term, you’ll likely end up paying more in interest. In fact, that extra interest could make your loan more expensive overall.

Your interest rate might increase

When you change one aspect of your car finance agreement – in this case, your term length – other parts of your loan could change too. In most cases, a longer loan term will come with a higher interest rate, so you won’t just be paying more interest due to the longer term but also because your APR has been increased too.

You’ll be tied into your agreement longer

With a Hire Purchase (HP) or Personal Contract Purchase (PCP) loan your finance will be secured against your new wheels. That means you won’t be the car’s legal owner until the loan term ends and you won’t be able to sell it, trade it in, or make any modifications. Elongating the loan term means you’ll have to live with these restrictions a little longer.

What is the process of extending my car finance term?

Step one in the process is usually to speak to your lender. Be prepared to tell them why you’re considering an extension and don’t be surprised if they propose an alternative option like temporarily freezing your interest or reducing your payments for a set period.
 
However, if they’re open to the idea of extending your finance term, the next step will likely be asking you to undergo checks. Don’t worry, we’re not talking about a trip to the GP, depending on your lender’s process, they’ll probably run both credit and affordability checks.
 
If you pass all these checks, you’ll then be made an offer with new terms including a new interest rate. Happy with the offer? Simply sign your new agreement and continue making payments until your updated term end date.  

What are the alternative options for managing my car finance payments?

If the cons of extending your repayment term outweigh the pros for you, there are other options to explore.

Refinancing

When you refinance, you’ll typically be taking out a brand-new loan with new terms, usually with a new lender. If you’ve taken steps to improve your credit score over time, you could even qualify for a lower APR. You’ll need to submit a new application and that could have an impact on your credit score, but once your new loan is in place, you can make your payments as usual until your term ends. 

Making overpayments

Depending on the terms and conditions of your finance agreement, you might be able to make overpayments without any penalty. While it’s not an affordable option for everyone, if you can overpay on those months when you’re feeling flush, you could cut the length of your loan and save more money overall.

Downgrading

If you still need access to a car but could get by with a stylish supermini rather than your pricey 4x4, you could look at downgrading. You’ll need to settle your finance first but, if you’re in positive equity (your outstanding loan amount is lower than your car’s value), you might be able to work out a trade with a dealer. In that case, they’ll settle the finance for you and then use the difference between your settlement figure and the car’s value as a deposit for your new wheels.