How to reduce car finance payments 

There are a few ways to reduce your car finance payments, if doing so is something that makes financial sense. For instance, you could refinance for a lower interest rate or at the end of a PCP agreement. It’s important to spend time researching the options before making any decision. 

5 min read
Man sat at a desk entering card details into laptop with car key next to him

How to calculate car finance payments 

You may be eager to refinance your car for any number of reasons, but you should make sure that doing so is the best financial decision for you before committing to anything. 

It can be helpful to have an understanding of how much is left to pay off your car before deciding on the next step.

Anyone can calculate how much of their loan is left to pay. You can request a statement from the company whom you have car finance with showing how much you owe. If you ask them for the total amount then they have to include all the interest you owe on there too. It will be easier to figure out whether or not you can afford to pay off your car finance in one lump sum, if refinancing is the best way to go, or whether you should just stick with your current provider. 

Should I refinance my car? 

Whether you should get out new car finance depends entirely on your individual financial circumstances. You could either end up saving yourself a lot of money or paying a large amount of extra interest.  

If you need to cancel your existing agreement in order to take out a new one, consider exactly how much you have left to pay. If paying it off early and taking out a different car finance agreement means that you gain financially, then go for it. If you will be worse off, then you may want to reconsider. When comparing costs, make sure you look at the total amount you owe, including interest.  

There are some circumstances under which you may want to refinance your car at the end of the term. For instance, if you have taken out a Personal Contract Purchase (PCP) agreement and can’t afford the balloon payment at the end. Refinancing here would enable you to keep the car, otherwise, you will have to give it back. This may mean that you have to switch to a new PCP agreement, or even a Hire Purchase (HPA) agreement. It will depend on your provider’s company policy and probably also your credit rating.  

How to lower car payment without refinancing 

Refinancing your car may not always be the best option and could leave you out of pocket, or it may not even be possible for you. But what should you do if you are struggling to keep up with your car finance payments? Consider these options as viable alternatives:  

Talk to the lender 

If you’re struggling to keep up with monthly car finance payments, talking to the lender could be beneficial.

They may be able to offer a more affordable solution, perhaps by spreading your payments out over a longer period. You also could be offered a car finance payment holiday. However, it is worth noting that this will likely mean that you owe more in the long run. The loan balance will likely remain the same, you’d just be paying over a longer stretch of time and accruing more interest. 

Part exchange for a cheaper car 

In some cases, you may be looking to get yourself a cheaper, more affordable car. If so, you could look at trading your car into a dealership in exchange for something cheaper. It’s important to get your car valued and ensure the deal you’d get means you’re paying off all the outstanding finance on your existing car. 

Can you use a guarantor for car finance? 

You may be able to reduce how much your car finance payments will be with a guarantor. There are companies that offer car finance loans with a guarantor and if your guarantor has a particularly good credit score you may even be able to access a better deal.  

Getting a guarantor is especially helpful for those who are young, inexperienced drivers because unfortunately, car finance will likely be more expensive for you than it is for more experienced drivers who have had time to build up a credit history.

Just be careful doing so, because if you stop making payments then the car finance company can chase your guarantor for them as well as you. You probably don’t want to put somebody you care about through that. 

Is it worth paying off your car finance early? 

There are different implications of paying off your car finance early, depending on what type of car finance agreement you have. But some of the basics are: 

  • Hire Purchase – you’ll have to cover the difference if you’ve paid more than half the cost and you won’t receive a refund if you hand the car back 
  • Personal Contract Purchase – if you want to keep the car you have to pay a final settlement fee (including interest and any early repayment costs) and a balloon payment  
  • Personal Contract Hire – you will need to give the car back regardless, but you can return it early; you just may have to pay for the full cost of the hire period you agreed to, so it may be worth keeping the car for this time  

Another thing that’s worth considering is overpayments. Your contract might allow you to make overpayments of up to a certain value within a year, but without being charged any extra. Doing this will help you avoid overpayment fees and pay off your car finance more quickly. It might be a good idea to speak to your provider and see what they can do for you.   

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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 20.7%, an annual interest rate of 20.7% (Fixed) and a deposit of £0.00, the amount payable would be £168.48 per month, with a total cost of credit of £3,608.67 and a total amount payable of £10,108.67. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.