Car refinance loans

If you’re refinancing onto a new PCP or HP deal, your new lender will settle the outstanding balance on your existing deal with a one-off payment.

Under the new agreement, you’ll repay a set amount, plus interest, each month over an agreed period of time.

By taking out a new car finance agreement, you’re effectively buying your car again, but with different terms tailored to you, which may be more favourable.

If you’re refinancing with a personal loan, you’ll need your settlement figure to help you work out how much to borrow.

This may include an early repayment fee if you’re leaving in the middle of a car finance agreement.

If you’re approved for a personal loan, you can use the money to settle the outstanding balance on your car.

This means you’ll own the car outright. You’ll then need to repay the loan including interest, in monthly instalments over a fixed period.

Your monthly repayments will be based on the interest rate, the amount you’re borrowing and your contract length. The APR shows the yearly cost of borrowing, including any compulsory charges, so it’s a useful way to compare deals.

You’ll typically need a good credit score to be eligible for the best car refinance rates.

Car refinancing will involve a credit check. The lender may also ask for additional information based on their eligibility criteria.

If you’re refinancing to a new HP deal, you’ll need to undergo any vehicle checks required by the new lender. This could include confirmation of ownership and the condition of the vehicle.

Once the necessary checks and paperwork have been completed, you’re good to go.

Get in touch with your current lender and ask for a settlement figure. This is the amount you’ll need to pay to end the agreement early.

It might not be the same as simply adding up your remaining monthly payments, as lenders use specific calculations when working out early settlement figures.

Most lenders can provide a settlement figure over the phone or through your online account. You can also ask for the figure in writing.

Your settlement figure will usually include the amount you still owe on your finance agreement, along with any charges or adjustments that apply when paying off your car finance early.

Because every agreement is different, it’s worth asking your lender for a breakdown of the settlement figure so you understand exactly what you’re paying.

If you have a personal contract purchase (PCP) agreement, your settlement figure is likely to take account of the optional final payment, known as a balloon payment, because you’re keeping the car.

When you refinance your car, the new finance is used to pay off your existing agreement.

In some cases, the new lender will settle the outstanding balance directly with your current provider. If not, you'll need to use the funds from the new finance deal to pay the settlement figure yourself.

Once the settlement figure has been paid, ask your original lender to confirm that the agreement has been settled and closed.