In the simplest terms, vehicle refinance is the process of replacing your existing vehicle finance loan with a new one – either through the same or another financial institution. The new loan pays the balance owed on your previous loan and gives you new repayment terms that you would meet as part of your new loan agreement.

Essentially, it wipes out the old loan and gives you a new monthly payment amount that you’ll meet for the agreed amount of time. There are several benefits and motivations behind deciding to refinance your vehicle, which we’ll explore here.

What we’ll look at:

• 5 insights into why you might choose vehicle refinance
• Vehicle valuation report
• When this isn’t the right choice

In order to make the right decision for your situation, it’s best to be properly informed on the topic. We trust that this information will help.

5 Reasons Vehicle Refinance Might Be For You

1. Interest rates are increasing
   We’ll start with the strongest reason why you might consider vehicle refinance, which is to save money on the interest you’re paying on your existing loan. With interest rates on the rise, it becomes about shopping around to secure the lowest rate that enables you to save more money on your loan – or at the least, not spending more than you have to.

2. Extended loan periods = extra cashflow
   We all want to get out of debt faster, but the reality is that there’s not always a quick fix to this issue. It then becomes about managing your debt more responsibly and giving yourself the extra cashflow to do so. Refinancing your vehicle means that you could secure an extended loan period and allow for more cashflow, which in turn, gives you more power to manage your debt carefully.

3. More manageable monthly instalments
   If you’re struggling to keep up with your car payments, vehicle refinance could result in lower repayment amounts – which is a good sight better than defaulting on your payments.

4. The power of negotiation
   Shopping around gives you the option to, as we’ve mentioned, secure a better interest rate or to negotiate a shorter or longer loan period based on your affordability. This can be useful if your personal situation changes and you want to pay off your vehicle faster, or if you need to take it a bit slower. This will depend on the terms of your new loan, so if these reasons resonate with you, make this the focus of how you research vehicle refinance.

5. Sort out the imbalance
   Vehicle refinancing is an extremely useful way to address a situation where your current loan is greater than your car’s actual value. This may not always be the case, because your car could be worth less than finance owed on it, making refinance a ‘no-win’ situation. The key to figuring this out, though, is to get a reliable vehicle valuation report and find out where you stand.

A Vehicle Valuation Report

Speaking of vehicle valuation reports, this is something that you can get for free today! AA Inform has partnered with Lightstone to provide free valuation reports that contain the retail estimate value, trade estimate value, introduction date, the last five retail sales, and much more.

Try it out for yourself! Vehicle Valuation Report. If you’d like to familiarise yourself with how refinancing your vehicle works, we’ve created a guide on ‘How To – Vehicle Refinance.’

When Vehicle Refinance Isn’t The Right Choice

As we’ve seen, there are a number of appealing reasons to refinance your vehicle. However, it’s worth noting that this may not always be your best course of action. There could be a cost associated with this decision that has the potential to worsen your financial circumstances.

For instance, some banks charge a pre-payment penalty to those who pay off their existing vehicle loans early. Additionally, there are some banks and car dealerships who may require you to pay the entirety of the interest owed for the negotiated repayment period.

You should also consider the fact that taking out a new loan could incur its own set of costs, like administration charges and vehicle inspection fees.

Lastly is the fact that applying for finance again could have a negative impact on your credit score.

All of these costs are well worth weighing up before you do anything.

Feeling informed?

Don’t forget that AA Inform is home to a range of useful tools and resources, including a personal loan calculator, access to multiple car and home insurance quotes, property valuation reports, and much more.