Why do people use vehicle refinancing?
If you’ve taken out a loan to purchase a vehicle you may find that you may be able to apply for a new loan to replace the current one. This is known as vehicle refinancing.
Should I refinance my car?
There are a number of reasons why people do this. Some of these include the following:
- Getting a better rate You may find vehicle refinance rates that are better than your current deal.
- To get more manageable payments
Perhaps you want a shorter or longer repayment period. For example, may find that you need to make smaller repayments over a longer period of time in order to make the debt more manageable.
- Taking on sole repayments If you’ve got a joint loan, you may want to remove one of the leaseholders so that only one person is responsible for future repayments.
- Making use of an improved credit score Your credit score gives you an indication of how creditworthy a lender may find you. If your score has recently improved, it could suggest that a lender may offer you a better deal than your current loan.
Vehicle refinance rates: what to expect
As with any other financial product, vehicle refinancing comes with pros and cons, so it’s important to consider carefully whether this is right for you. Some vehicle refinancing loans may include extra fees, costs or penalties (for example, if you make repayments earlier or later than agreed). When you add these up, the refinanced loan could be more expensive than it initially seemed, so do your research and weigh your options before committing to it.
What is the effect of vehicle refinancing on my credit score?
As mentioned, your credit score gives you an idea of how creditworthy a lender may find you. There is no one universal credit score, so scores may vary depending on who’s doing the calculating. Generally speaking, though, if you make an application for a loan, a ‘footprint’ will be recorded on your credit report. Too many searches could show lenders that you’re financially stretched, and may reflect poorly on your credit report.
On the other hand, vehicle refinancing could help to make your debt more manageable if you’re struggling to meet your current car loan repayments. If you’re making late payments or missing them completely, you may find that a more suitable loan may help you to start making repayments on time, which could improve your creditworthiness.
Refinance my car loan with poor credit
Although some companies consider applicants with poor credit history risky to lend to, this doesn’t necessarily mean that you won’t be given a new loan to replace your current one. It may be, though, that lenders will charge you higher interest rates.
If you’re having trouble with poor credit you may want to look at debt consolidation to help improve it. Bear in mind, though, that this method of debt management comes with its own risks, and may not necessarily help with your vehicle loan.
Refinancing at the end of a Personal Contract Purchase (PCP) agreement
If you’ve got a Personal Contract Purchase (PCP) agreement, the lender buys the vehicle – for example, a car – on your behalf. You’re then required to make repayments to cover a portion of the costs of the car. At the end of the agreement, you can choose to:
- upgrade to a newer model using the equity you’ve purchased in the current vehicle as your deposit,
- return the car (there won’t be need for further repayments),
- make a one-off payment, thus purchasing the car fully, or
- refinance the final instalment – once you’ve made the PCP car finance repayments, you’ll own the car outright.
If you’re thinking of vehicle refinancing, you may want to check your Equifax Credit Report & Score in advance. Free for the first 30 days then £7.95 monthly, the report shows you your borrowing history, while the score gives you an indication of how creditworthy a lender may find you.
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