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How to refinance a car


If you’re looking at pennies or looking to reduce your monthly spending, you might be looking at your auto finance contract and wish it were gone. Car finance deal, can be Buy Personal Contracts (PCPs), Hire Purchase (HP) or leases, which tend to last about three years, but there’s a way to reduce those monthly payments before the deal closes without sacrificing your car.

Refinancing your car is an option available to most people who have a car that they pay with financing, but it’s not without its downsides. In this guide, we’ll look at how you can refinance your vehicle and whether refinancing is a good idea in your case.

What is auto refinancing?

Unlike a lot of things in the world of auto finance, the concept of auto refinancing is a simple one. It involves taking out a new loan to pay off your existing auto financing agreement.

The idea is that the new financing agreement you make will have terms that are better suited to your needs. This could be a lower interest rate or a longer term to reduce your monthly payments. You may also want to take out a loan to pay the final payment in your agreement with your PCP.

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Should you refinance your car?

This is the big question about auto refinancing. There are pros and cons associated with the decision to refinance, and since most people are looking at this option as a means of saving money, it is important that you make sure it will have a positive projected impact. to your bank balance.

If you’re refinancing to save money, you’ll need to arrange a new deal with a lower interest rate or longer term. Of course, if your new trade drags on, you’ll have to pay it off over a longer period of time and more interest will accrue. The total amount you have to pay back can also increase, so you will choose a lower monthly payment in the short term but pay more in total.

Another reason to refinance is to take ownership of the car. If you’re entering an agreement with PCP or HP, the finance company will own the vehicle until you pay it off. However, you can refinance the vehicle with an unsecured bank loan to pay off your financing deal and leave you the owner of the vehicle with just a bank loan to pay it back. .

With PCP financing, there is an option to pay the final payment or pay the ‘bubble’ at the end of the transaction and become the owner of the vehicle. Some people borrow to cover this balloon payment so they don’t have to pay all of the money in one go. This is another form of refinancing.

With any refinance option that moves you from an auto-secured PCP or HP auto financing arrangement to an unsecured bank loan, you lose some of your consumer protections. . There will be no option to return the vehicle as you will be the owner and Voluntary Termination provisions built into car finance transactions will no longer apply.

When considering refinancing a car, it’s paramount to explore all options fully and make sure you’re doing the right thing with your finances. You may not be offered an interest rate low enough to make the process worthwhile, especially if you have a low credit rating or the extra amount you have to pay could make a longer contract difficult. uneconomical. It will depend on your individual circumstances and the terms you are offered.

How does auto refinancing work?

The actual mechanics of a refinance arrangement will be handled by the finance company or bank you use to execute your new loan or financing arrangement. They basically involve the old financing agreement being paid once and your new agreement starting with different monthly payments on terms you’ve agreed to.

Refinancing can be considered at any point in your contract, but you will have to apply and be approved for any new deals. There is no guarantee that you will get a refinance offer that makes going through the process worthwhile.
One thing to watch out for when scaling financial transactions is negative equity. This means that the sum of the payments owed in the finance contract is more than the value of the car and you are paying too much to keep it.

With any potential new financing arrangement, make sure you understand all of the terms and conditions before agreeing to switch to another lender. As mentioned, it’s imperative that you find out what changes in interest rates and contract lengths or any additional fees will affect the total you pay.



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