Managing your finance
How to Refinance Your Car Finance
How to refinance your car finance at a lower rate — when it saves money and when it doesn't.
Refinancing car finance means taking out a new agreement to pay off your existing one, usually to get a lower interest rate or smaller monthly payments. It saves money when the new APR is lower than your current rate over a similar term.
Done well, refinancing cuts your total interest. Done badly — by stretching the term to lower the monthly — it can cost more overall. Here's how to tell which you'd get.
How does refinancing car finance work?
Refinancing replaces your current car finance with a new loan that clears the old balance, leaving you with a single new agreement. You then pay the new lender instead.
The new loan pays off your existing settlement figure, so the first thing to check is that figure — use the settlement calculator. Then compare the new deal against what's left on your old one.
How to refinance your car finance
To refinance, get your settlement figure, find a better rate, then use the new loan to clear the old agreement. Follow these steps.
- Ask your lender for your current settlement figure.
- Check your credit file and the rate you'd likely be offered.
- Compare new deals on APR and total cost, not just the monthly payment.
- Apply for the new finance and use it to settle the old agreement.
- Confirm the old finance is closed and start paying the new lender.
When does refinancing save money?
Refinancing saves money when the new APR is lower than your current rate and you keep the term similar. A lower rate over the same time means less total interest.
Compare the total interest on both deals with the refinance calculator. If the new total cost is lower, you're winning; if it's higher because the term is longer, you're not — even if the monthly drops.
Lower monthly isn't always cheaper
The costs and risks of refinancing
Watch for early settlement charges on the old deal, fees on the new one, and a longer term that quietly adds interest. These can cancel out the saving.
Your old lender may add up to about one month's interest when you settle early. Factor that in, plus any new arrangement fee, before deciding. If your aim is simply a smaller payment, see lowering your payments.
Frequently asked
What does it mean to refinance car finance?
Does refinancing car finance save money?
Can you refinance car finance with bad credit?
Are there fees for refinancing car finance?
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