If you’ve taken out a finance package to fund the purchase of your car, then you may have seen refinancing as an option. However, if you are new to car finance or don’t know much about what options you have available after you’ve taken that original finance package, then refinancing can be a bit confusing.
So we’ve put together this quick guide to help you understand what it is and how you can benefit from it. Here’s all you need to know about refinancing your car.
Car refinancing is when you take out another loan or finance package to pay the outstanding balance on an existing car finance agreement. So if you’ve taken out a hire purchase or a personal contract purchase package, you can start what is in effect a new finance deal to pay the remainder of the deal, also known as the outstanding balance.
Refinancing your car can be a great way to reduce the amount of money you are paying on your monthly repayments. This is because you will be able to spread the money that you have left to pay over a longer period of time than is left on your existing agreement.
To give you a very basic example, say you had £2,000 left to spend on a finance agreement with 12 months left on your package. That would mean monthly payments of £166. If you were to refinance that balance on a new deal over 3 years (36 months), that would reduce the cost to £55 per month. Now this is just a very basic example and doesn’t factor in additional fees and interest charges, but it should give you an idea of why it might be attractive to refinance your package.
Your financial circumstances could also have improved since taking out that initial finance agreement, so you might be able to secure a refinance package with much more favourable terms, such as a lower interest rate.
Another reason you may want to refinance your car is that it will allow you to own the vehicle sooner. If you choose to refinance with what’s known as an ‘unsecured loan’, you will receive money direct to your bank account for you to pay to the finance provider. That way you will be paying off the outstanding balance of the package and owning the car, while making the monthly refinance payments.
In theory, you might be able to refinance your car at any point during the finance agreement. However, the earlier you do it, the less advantage you have. Partly because you won’t have that much of a difference in term length between the two packages. But also because there are likely to be early settlement fees and charges in place that mean you won’t be saving as much money.
It’s much better to do it towards the end of the agreement where the amount of money you will save on your weekly payments mean any charges you incur are not as big a factor.
You will need to contact your existing finance provider and ask for the outstanding balance that needs to be repaid. Then you will need to get a quote for your refinance package. Shop around to find the best deal. Some websites, like Creditplus, can compare multiple finance deals for you so you can see which is best for you.
The refinance application will be the same as the original car finance application, with the same checks and requirements, so you’ll need to have the same paperwork and proof of income that you needed for your original deal.
Once you have the refinance package approved, you will need to pay the outstanding balance on the original finance agreement. Ask your new finance provider if they can help guide you through the process.
If you’re considering getting a new car or refinancing the car you have, then you don't want to miss out on what Creditplus can offer. Applying with us will not affect your credit profile, so why not complete a quick application now.Apply For Refinance