Refinancing a PCP Finance Agreement

If you have a car on a PCP finance deal, you may not know if or how you refinance.

Buying a car is expensive; that's why car finance is a great option to help stretch the payments across multiple years rather than all in one go. A finance deal can last from as little as one year to as many as eight years, depending on the term you agreed at the start.

Things can change unexpectedly, however, and when you took out the deal, you may have had little concerns about money or been generally financially secure and able to comfortably make your repayments. 

You may have lost your job or been made redundant, meaning the income you were once getting has gone or significantly reduced, and you've had to start prioritising other bills and outgoings such as a mortgage or rent.

Do you have a car on finance and would like to reduce your monthly repayments? Sign up with Car Credible today; we could help you save money on your deal.

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It's tough to imagine what life might look like in those scenarios, especially when you are looking to buy your dream car. But sometimes, certain circumstances mean we have to consider our options.

Many car finance users may not have heard of the term refinancing. It's an option that could help people reduce their monthly repayments or lower their APR. We're here to give you all the information about refinancing, so it's an option to consider if you need it.

What is a PCP agreement?

Personal Contract Purchase, or PCP, is a type of car finance agreement that essentially allows you to lease a car until the end of the contract. Once you have made all your agreed monthly payments, you have several options.

  • Hand the car back and not pay a penny more.
  • Pay the final balloon payment and own the car outright.
  • Use any equity you have in the vehicle to put down as a deposit on a new car.
  • Refinance the balloon payment by taking out a new loan and making lower monthly payments.

PCP things to know

  • A PCP deal typically lasts between three to five years.
  • Prospective lenders will check your credit report before approving your application.
  • You should expect to put a deposit down, typically 5%-10% minimum.
  • The total amount you pay back is generally higher than a Personal Contract Hire (PCH) deal. It is, however, normally less than Hire Purchase (HP).
  • At the end of the agreement, you are required to pay the balloon payment if you wish to own it. The balloon payment is how much your car is predicted to be worth at the end of your deal, based on depreciation.
  • You will need to agree to annual mileage limits at the start of your agreement. If you have exceeded these, there will be an excess mileage charge.


What is refinancing?

Refinancing is the term used when you take out a new car finance loan to pay off an existing loan you are in. When you refinance, a new lender will settle your outstanding payments, and you will begin a brand-new deal.

When you refinance, you will typically keep your existing car while increasing the length of time you have to make your repayments. Doing this will reduce your monthly repayments as you're paying less off over a longer period.

What are the benefits of refinancing a PCP?

When you first took out your finance deal, you may have been in a poorer credit position, thus being offered a higher APR. If you've since improved your credit score, you may be eligible for a lower APR, saving you money on interest over time.

Your financial circumstances may change, and you can no longer afford your repayments. Refinancing could allow you to reduce your monthly outgoings. 

Countering that, you may want to pay your deal off quicker, so you can own the car outright and stop repaying monthly. This might be the way if you've recently come into some money or have savings available.

How to refinance your PCP balloon payment?

Refinancing a balloon payment is a good option for someone that wants to keep their car but can't afford to pay the balloon. It's also good if you can't find a newer car you like or can afford, and keeping your existing one is easier.

If your car is still new - four to five years old - you can often refinance the balloon payment with a new PCP. This would involve a new PCP deal with a lower balloon payment.

If the car is older or has greater mileage, you could take out an HP and eventually own the car outright once you have made all your new repayments. 

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How Car Credible can help you refinance

Car Credible could help you refinance your car today. To discover your options, you should ensure you sign up for Car Credible, and we will be able to review your finance deal and subsequent options.

You can get your car finance quote within your personalised dashboard by clicking on the button. You can select that you want to lower your monthly repayments from here and fill out our car finance form.

We will send your request to our partners, who will assess your eligibility and let you know your options. If successful, you could be in a cheaper, better car finance deal within the next few days.


When is the best time to refinance?

Generally, any time is a good time to refinance, though we recommend waiting at least three months into a new deal before applying for new finance. That will give your credit score a chance to adjust to the new finance in your credit file and understand how your monthly repayments is affecting your overall finances.

Is it possible to refinance with the same lender?

While it's not impossible to refinance with the same lender, the likelihood is you will apply for new car finance with a new lender. That's because when you refinance, you will be paying off your existing car finance deal with a new loan, so your current lender would unlikely agree to that unless you were extending your loan and paying more in interest in the long run.