So if you are wondering "can I refinance my car" and wondering if this is something you should consider, you have come to the right place. If you’re trying to find ways to make your monthly repayments more affordable or just save money while still keeping your car, you may want to consider refinancing your vehicle. Whether you have a PCP or HP agreement, refinancing is an option you can take. However, although it's something that could save you money, it’s also crucial to point out that doing so may have some drawbacks that you should be aware of. Read on to know more about refinancing your car and see if it’s a good idea to improve your current situation.
What Does It Mean to Refinance My Car?
Are you unsure about what refinancing means? Unlike many terms and concepts you encounter in car finance, this one is actually simple and straightforward. Refinancing means you take out a new finance agreement so you can pay off your current car loan. Many drivers choose this option because they can sometimes find a new finance agreement, usually with lower interest rates and better terms to suit their present circumstances.
It’s possible that you’ll be offered a lower interest rate for your new loan, or have a longer repayment term, which makes your monthly outgoings a lot more affordable. If you have a PCP car finance deal, you can also refinance your car so you can pay the final balloon payment and be the owner of the vehicle.
Should I Refinance My Car?
Now that you know what it means to refinance a car, you’re probably weighing up its pros and cons. For a lot of drivers, they choose to refinance their cars so they can save money. What’s important to note here is that before you make your decision, you have to be certain that getting a new loan will have a positive effect on your financial situation.
Maybe you feel your credit score has improve since you prior application and so you might be able to get a better/lower interest rate. It's certainly worth checking out your credit score to find out.
The goal of refinancing your car is to make things better for you financially. So to make sure this happens, your new loan needs to have a lower interest rate or a longer repayment term. Bear in mind though that if you choose to have a longer repayment term, you’ll be paying more interest in the long run. (And be aware that there may be charges to end your current agreement early.) If you can afford to do so, it's also wise to consider getting a shorter repayment term even if the monthly instalment amount is a bit higher.
Refinancing to Pay the PCP Balloon Payment
If you have a PCP car finance agreement and you’re nearing the end of the contract, you may also refinance your car so you can pay the final balloon payment. Once you’ve settled all the payments, you will be the legal owner of the car, and you can now choose to keep it, modify it or sell the vehicle if you want. It’s a good idea to refinance your car for this reason, so that you won’t have to spend a big chunk of your savings on the balloon payment at the end.
While you’re deciding whether getting a new loan is for you, do explore all the possible options exhaustively. It’s important that you’re sure that this is the best decision to make considering your current financial standing. Also, prepare for the possibility that you may not be given a better interest rate to make taking out a loan even worth your while. This might be the case if you don’t have a strong credit score.
How do I refinance a car?
The actual process of taking out a new loan will be taken care of by the finance company you’ll use to refinance your car. Two parts of this process involve paying off your old car finance deal in one go and then starting another agreement. You’ll most likely have a different monthly instalment amount based on the new terms of the new deal. Ideally, this should be lower than your previous monthly repayments and you would be looking to get a lower APR than your previous loan.
You may refinance your car at any point in the duration of your car finance agreement. However, as with taking out any other kind of loan, you still have to apply. This means there’s no guarantee that when you decide to refinance your car, you will instantly be granted credit. Refinancing still involves making an application to the finance company, ,but it's not a good idea to make multiple applications to different companies at the same time, as this will adversely affect your credit score. You can make enquiries, shop around and get quotes, then apply to the car finance company with the best deal.
Points to Remember
Do note that when you take out a new loan, you’re essentially extending your finance agreement. In this situation, be aware of reaching negative equity or owing more money on the finance deal than what the car’s actually worth. If this is the case for you, you may want to consider other options so you won’t end up paying more than the car’s value.
Refinancing a car is a lot similar to the process of taking out your previous loan. However, you still have to be aware of the details of your new agreement. See to it that you read and understand your contract fully and know whether you’re getting better terms that will make refinancing worthwhile.
So, can you refinance your car? Yes, this is definitely an option you can take at any point in your car finance contract. You still have to go through the process of applying for credit though so you may or may not get approved by the lender.
If you’ve carefully assessed this option and you’re sure that this is the most practical decision for you right now, prepare for your refinancing application as best as you can so you’ll be offered better terms for your new finance agreement.
If this is a path you think might be worthwhile, check out our competitive refinancing deals here at Carmoola. It's a very straightforward and simple process! 👍