Car refinance Car finance renewal guide: when & how to switch

Make your switch work harder for your wallet

Switching your car finance is not just about chasing a lower monthly figure. The timing, the APR you secure, and how you handle your settlement can add up to thousands saved or lost. Here is a clear, UK-focused route to renewing or refinancing with confidence.

A well-timed renewal in the final six months can turn equity into leverage.

Who should read this

If your PCP ends within six months, you are juggling higher repayments, or you want to move into a cheaper or greener car, this guide is for you. It also helps if you have outstanding finance and need to switch without penalties or are exploring potential FCA compensation for historic car finance.

The terms that actually matter

Understanding the language keeps you in control.

• Settlement figure - The amount needed to clear your current agreement today. It typically falls each month as you repay capital.
• Equity - The difference between your car’s market value and the settlement figure. Positive equity can become your next deposit.
• Negative equity - When the settlement figure is higher than the car’s value. Switching too early can create or worsen it.
• APR - The annual percentage rate that reflects the cost of borrowing. In the UK this can range roughly from about 5.5% for strong applicants to over 20% for higher risk.
• Balloon payment - In PCP, the optional final payment to own the car. It also counts when calculating the 50% voluntary termination threshold.
• Voluntary termination (VT) - Your right to end certain regulated agreements once you have paid at least 50% of the total amount payable, including fees and any balloon in PCP.
• Cooling off and settlement rights - You can request a settlement at any time and compare options. Paperless and instant decisions are increasingly common through digital applications.
• Green finance - Discounted rates or incentives for electric and low-emission cars, now offered by many UK lenders.

Your switching choices, compared

There is no single best route. Choose based on timing, equity, and your budget.

• Renew your PCP in the final six months

  • Why it helps: You can see your settlement figure, the car’s value, and any equity. Dealers are motivated to retain customers and may offer contributions or incentives.
  • Watch for: Depreciation if you leave it too late. Condition and mileage charges if you return the car.

• Refinance to reduce monthly payments

  • Why it helps: Spread the cost over a longer term or secure a lower APR to ease monthly outgoings.
  • Watch for: Extending the term can increase your total amount repayable. Always compare total cost, not just the monthly figure.

• Switch with outstanding finance

  • Why it helps: You can settle the existing agreement and move to a different car or lender, potentially securing better terms.
  • Watch for: Negative equity. You may need to cover a shortfall or roll it into the new finance, which can be costly.

• Use VT where appropriate

  • Why it helps: Provides a way out if the agreement is unaffordable and you have met the 50% threshold.
  • Watch for: Condition and mileage must be reasonable. VT affects access to the car, not your credit file by default.

• Go green with incentives

  • Why it helps: Some lenders offer lower rates or perks for electric and low-emission models, helping offset higher sticker prices.

Quick comparison: finance approaches

Costs, savings, and the risks to manage

• APR impact: A few percentage points can add thousands over a 4 to 5 year term. Improving your credit score and increasing your deposit can materially lower APR.
• Timing is leverage: The final six months of PCP typically offer the best mix of transparency and dealer appetite. Too early risks negative equity. Too late can mean sharper depreciation and fewer options.
• Total cost vs monthly: Extending terms reduces monthly payments but can increase total interest. Ask for the total amount repayable on each quote.
• Fees and charges: Check settlement fees, early termination fees, excess mileage, damage charges, and any admin costs for new agreements.
• Incentives: Manufacturer deposit contributions, loyalty bonuses, or green finance offers can reduce total cost if they do not come with a higher APR.

Standout tip: Always compare at least three like-for-like finance quotes on the same car, term, mileage, and deposit.

Who qualifies and what lenders look for

• Credit profile: Strong credit generally unlocks lower APR. Thin files or adverse credit push rates higher. Check your UK credit report and fix errors before applying.
• Affordability: Lenders assess income, existing commitments, and disposable surplus. Be realistic about a sustainable monthly figure.
• Car criteria: Age, mileage, and value caps apply. Electric models may qualify for green finance deals with preferential rates.
• Equity position: Positive equity strengthens your negotiating position. If negative, consider waiting, adding a deposit, or choosing a cheaper car.
• Settlement and VT rights: You can request a settlement at any time. VT is available once you pass 50% of total payable, including any PCP balloon.
• FCA investigation awareness: If you financed a car between April 2007 and November 2024, you may be eligible to complain about historic commission practices. Firms broadly have until December 2025 to issue outcomes, which could mean compensation.

Step-by-step game plan

1. Check settlement figure and current market value.
2. Calculate equity or shortfall on today’s numbers.
3. Review credit report and improve quick wins.
4. Define budget using total amount repayable.
5. Compare at least three like-for-like quotes.
6. Time renewal within the final six months.
7. Consider refinance or VT if affordability bites.
8. Lock terms in writing and read all fees.

Pros, cons, and practical considerations

• Pros
  • Potentially lower APR and monthly payments
  • Use positive equity as a deposit
  • Digital approvals and paperless contracts speed up switching
  • Green finance can subsidise EV costs
• Cons
  • Extending terms can increase total interest
  • Early switching can crystallise negative equity
  • Mileage and condition charges on returnable agreements
  • Credit checks can impact future borrowing if repeated frequently

Red flags before you sign

• Focusing only on monthly payments while ignoring total repayable
• Switching more than six months early on PCP without strong equity
• Rolling negative equity into the next deal at a higher APR
• Missing mileage limits or fair wear charges on return
• Not checking for manufacturer contributions or end-of-quarter dealer targets

If affordability is tight, ask the lender for a lower term and a higher deposit, then compare the total cost against a longer-term alternative.

Alternative routes to consider

If you prize flexibility, PCP is compelling. If the lowest monthly cost matters and you do not need ownership, leasing fits. For clear ownership with predictable costs, HP is straightforward.

Frequently asked questions

• When is the best time to renew a PCP? Typically in the final six months. You can see your settlement, assess equity, and secure stronger offers as dealers seek to retain customers.

• Can I refinance to cut monthly payments? Yes. A lower APR or longer term can reduce monthly costs. Check the total amount repayable, as longer terms usually increase overall interest.

• Can I switch cars with outstanding finance? Yes. You must settle your current agreement first. If you have negative equity, you may need to pay the difference or it may be added to the new finance.

• What APR should I expect? UK car finance APRs vary widely, roughly from about 5.5% to 20%+. Your credit, deposit, and car choice all influence the rate.

• What is voluntary termination and when can I use it? VT lets you end certain regulated agreements after paying at least 50% of the total payable, including any PCP balloon and fees. Condition must be reasonable.

• Could I be due compensation for past car finance? If you financed a car between April 2007 and November 2024, you may be eligible to complain about historic commission practices. Firms generally must respond by December 2025.

What to do now

• Request your settlement figure today and get an up-to-date valuation.
• Gather three written quotes on the same car, term, mileage, and deposit.
• Time your decision within the last six months of PCP. If you need relief sooner, compare refinance versus VT using total repayable figures.
• If you financed a car from 2007 to 2024, check your eligibility to complain and diarise deadlines.

Important information

This guide is for general information only and is not personal financial advice. Check your agreement and speak to your lender or a qualified adviser before acting. Eligibility, rates, and incentives vary by lender and your circumstances.