Our guide to car refinance - Anglo Scottish Finance

Our guide to car refinance

26th January 2022

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When it comes to saving money on monthly payments most people are usually aware that they can refinance or remortgage their homes, renegotiate their energy deals or switch their credit cards to interest-free deals, but many people are unaware that it is possible to refinance car deals.

Car refinancing is no different from the above examples but seems to be an underutilized way for people to save money.

What is car refinancing?

Refinancing is the process of taking out a new finance agreement to pay off the existing and outstanding balance on a car finance agreement.

Why would you refinance your car?

There are a number of reasons why you may choose to refinance your car deal.

  • Lower monthly payments

If your circumstances have changed, or you’re struggling to make your repayments, there’s no need to wait until the end of your agreement or hand your car back. You could swap your existing loan to one with cheaper monthly repayments and a longer repayment period.

  • A better deal

You may have signed up for a finance deal with your car dealership without realising that you could have sourced your own finance from a third party. By shopping around for a new finance agreement, you could secure a lower interest rate, and lower your costs.

Also, if your circumstances have changed you’ve been able to improve your credit score, you may be eligible for better rates with a new deal. Refinancing could mean you pay a lower rate of interest, lower your monthly repayments, or reducing the total amount payable.

  • Keep your car

If you bought your car on a PCP (personal contract payment), you will probably be in line to pay a balloon payment if you want to keep your car. If you don’t have the available funds to pay the amount outright, you could refinance the balloon figure with a new lender to make the costs more manageable.

Types of car refinancing

There are two ways to refinance your car deal.

Balloon refinance

If you have previously bought your car on a PCP (personal contract plan), and do not have the available funds to pay the balloon payment, your options with your existing lender will be to either return the car, or negotiate a deal on a new car, but there is another option, however, it is possible to refinance the balloon amount with a new lender.

A balloon finance deal would cover the cost of the final payment to your existing lender and break the cost down to much more manageable monthly payments.

Refinancing your car agreement in this way will increase the period of time that you are paying for your car, but it can be a useful way to avoid making a large payment or switching to a new car if you are happy with the one you already have.

Points to consider

  • Make sure you take note of the total amount payable on the loan. If you’ve chosen lower monthly payments but a longer loan term, then you could end up paying back more overall.
  • Effect on your credit score. Taking on new debt may reduce your credit score slightly, but because refinancing replaces an existing loan with another of roughly the same amount or lower, its impact on your credit score should be minimal.

If you think refinancing could be for you, contact our car finance experts to discuss your options.


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