How to Refinance an Existing Loan Using New Car Finance?

Are you not happy with your existing car loan payment plan? If you want to secure better rates or a friendlier monthly payment structure, refinancing can be a smart move. It is like upgrading the ongoing loan plan to a better option.

Refinancing lets you reduce the cost of borrowing. You can try this option with the same lender or with an alternate lender as well. This is to simplify the overall debt structure you have been managing so far.

The benefits of refinancing oftentimes remain unexplored. You cannot only rely on refinancing to purchase a car, but also to reduce or replace the ongoing debts. It might happen that your credit scores have changed suddenly after you are approved for a car loan.

Now, you want to work out a better way to manage the cost and deal with this ongoing problem. In that case, you can opt for a new car finance with bad credit in the UK.

Pre-qualify with a few lenders at the same time. This will help you understand the interest rates you can get for this option despite poor credit. Then, you will be in a position to negotiate with your existing lender for better rates.

There are other ways you can refinance the current car finance. Take a tour of this blog now.

Refinancing an existing loan using new car finance

This term basically means replacing the current loan with a new one. The primary purpose is to upgrade to a better borrowing option. When you refinance, you will have to sign a new loan agreement.

This is a better way to manage payments of previous loans. This approach commonly works when:

• The interest rates have reduced after you took out a loan
• Your credit scores have improved
• You want to lower the monthly payments
• You can afford the cost of extending the loan term
• You want more flexibility offered by a different car finance option

4  Ways to refinance an existing loan for a car

Before refinancing, you must get acquainted with the workings of the different options. The table below has been provided for your better understanding.

Types of car refinancing	Monthly payments	Best for
Hire Purchase (HP)	Medium to high	Suitable for anyone who wants ownership at the end of the term
Personal Contract Purchase(PCP)	Lower than hire purchase	When you want lower monthly payments and more flexibility
Personal loans	Will vary depending on the repayment pattern and term	Ideal when you want to be the owner from day one
Lender-to-lender	Usually lowers and is applicable when credit scores improve	When you want better rates from the same lender

4  Benefits of switching to a new car finance agreement

There must be some strong motivation behind taking this plunge. At the same time, it is important for you to understand what you can expect from the new loan agreement.

1.     Reduction in monthly payments

This switch can help you get an extended term. As a result of it, the amount of money you have to repay monthly will become smaller. This is because the number of months has increased, and you have got more time to repay.

2.     Obtain better rates

You might have observed that due to a sudden fluctuation in the market, interest rates have reduced. Now, you might want to refinance to get that new rate. The likelihood of getting desired rates increases when your credit scores have improved.

3.     Makes budgeting easy

Refinancing means your closure with the existing loan. It will consolidate those payments, and you will begin a new journey with new terms and conditions. This simplifies your finances, and you will find budgeting has become more expedient than before.

4.     Enjoy more flexibility

When your existing loan structure lacks flexibility, you can go for that switch. With refinancing, you can opt for a new loan product to finance the purchase of your car. However, this switch lets you choose something according to your financial needs and capacity.

4  Risks you must consider before refinancing for your car

This step will bring in some setbacks, and you must take note of them carefully.

• Getting a longer term can be helpful, but it increases the total interest you will pay
• Some refinancing options might require you to meet pre-payment charges
• The outstanding loan amount might be worth more than the actual value of the car
• Your credit scores might get affected if you do not handle payments cautiously

Refinancing makes sense when you think you can save a significant amount of money on interest rates. Moreover, it is a worthwhile decision if your financial situation has improved.

The bottom line

At times, you might have to look beyond the conventional refinancing option. This could be because of your terrible financial state. Although different ways are available, getting very bad credit loans with no guarantor from a direct lender will be difficult.

Your credit scores are low, and this will make refinancing difficult. Even though you get an opportunity, it will require strong assurance, such as a guarantor or collateral.

Therefore, if you are unable to produce a guarantor, you must be prepared with assets. You must be ready to pay heavy prices when you have to borrow with very low credit scores.

FAQs

Can I refinance my car loan if I have taken out one recently?

You can refinance even when your loan is relatively new. However, when your loan is in its early stage, you might have to face high early settlement or pre-payment charges. This might downsize the likelihood of making adequate savings.

Will refinancing affect my credit score?

You will be applying for a new loan, and this can cause a small dip in your credit scores. However, your credit history will not be affected when you are pre-qualifying for loans. Again, late repayments can adversely impact your credit scores, while timely payments will help in improving your scores.

Does refinancing reset the loan term completely?

The loan term will start afresh, as the previous one will no longer be followed. Your monthly payments might be reduced. However, you will have to pay more interest, and you have to choose a shorter term to reduce the overall loan payments.