Lots of us choose to buy our cars on finance.
It means you don’t need a large upfront sum to buy the car you want. Instead, you just factor it into your monthly outgoings.
As life gets more expensive, however, your car payments might be putting more pressure on your purse strings. This guide will show you what options are available to reduce your payments.
Be aware that reducing your monthly payments usually means a longer finance contract. This means you'll pay more in total over the lifetime of the agreement as you’ll have more interest to pay.
If you financed your car with Motorpoint, get in touch with us for a tailored finance solution. Speak to us in store or phone us on 01332 227 227.
- Reducing PCP car finance payments
- Reducing HP car finance payments
- Request a payment holiday
- Finance a less expensive car
Reducing PCP car finance payments
If you took out a Personal Contract Purchase (PCP) finance agreement on your car, you might be able to refinance the amount you owe to lower your monthly payments.
Your first step should be to contact the car retailer or finance provider you bought your car from. They’ll arrange to pay off the remainder of your current agreement, then roll that and any other interest and charges into a new finance deal.
The new deal will be over a longer period of time. This means your monthly bill will end up lower than your current agreement, but you’ll pay more in total for the vehicle thanks to the extra interest payments.
Refinancing a PCP car can be done either at the end of the original PCP agreement to pay the optional final balloon payment, or during the PCP deal itself.
Refinancing a PCP car at the end of your agreement
PCP finance deals have lower monthly payments than HP deals because you won’t own the car at the end of the agreement. To permanently own a car bought on PCP, you’ll have to pay the optional final balloon payment – usually a large lump sum.
If you can’t afford the balloon payment in one go and want to keep the car rather than hand it back to the finance company, you can refinance this big single payment. This means you'll keep the car and fully own it once you’ve paid off the debt you owe on the balloon payment. You will have to continue making monthly payments until the balloon is paid off, but these will be less expensive than the payments you made during your PCP deal.
Refinancing a PCP car during your agreement
This is a less common point to refinance your car and is probably only worth considering if you urgently need to reduce your monthly outgoings. You will probably have to pay more in total over the life of the finance deal.
In this circumstance, contact your finance provider and ask if they can offer you a new agreement with a lower monthly payment. If possible, they’ll usually offer an agreement over a longer period so your monthly payments go down. However, the total amount you’ll pay will go up thanks to paying interest over a longer period of time.
Be aware – if you refinance your PCP agreement before it ends, you might be affected by negative equity. This is because, at the point in your agreement you’re wishing to refinance the car, it is worth less than the total amount you owe on it – otherwise known as being in negative equity. Any negative equity you owe will have to be rolled into your new finance agreement, which limits what lenders are willing to make offers to you, and the interest rates you’ll be able to get.
Reducing HP car finance payments
If you’re struggling to afford your monthly Hire Purchase (HP) payments, there’s really just one option available to you to cut your costs. You'll have to hand back the vehicle and ending the agreement, in what’s called 'voluntary termination'.
This is usually only available if you’ve paid off more than half the vehicle's value. In which case, your finance provider will normally take the car back without any further costs provided it’s in good condition.
This isn’t a desirable option because you won’t get any of the money you paid, and you can’t keep the car you were paying for, but it will end your monthly payments there and then. Voluntarily terminating a finance agreement will go on your credit report but won’t affect your score, while missing a repayment will have a negative impact.
Request a payment holiday
If you're facing short-term money problems but expect to be back in the black soon, it might be worth requesting a payment holiday from your finance provider. This is usually a one to three-month period where you don't have to pay your finance payments, giving you a chance to recover your finances.
Be aware that this holiday will be recorded in your credit history, which might make it harder to get good finance rates in the future. However, it's much better to have a payment holiday recorded on your file than a missed finance payment.
You'll still have to pay all the money you owe eventually, and you'll rack up extra interest costs during your payment holiday. This extra interest will usually make your monthly payments a little higher when you restart paying them, or lengthen your agreement.
Payment holidays are always at the discretion of your finance lender and not all providers will agree to them. It's worth checking the terms of your finance contract before agreeing to it.
Finance a less expensive car
Another reliable way to lower your monthly car payments is to take out a new finance agreement on a less expensive vehicle. In this case, you’ll need to contact your finance provider and discuss your options with them to understand what vehicles and what kind of budget is available to you.
It’s important to note that you’re not simply ‘swapping’ your finance agreement over to a new vehicle – you’re ending the original agreement early, and moving to a totally new one. This means your first agreement must be settled before you can leave it, which could see you fall into negative equity with the vehicle being worth less than the amount you owe. In this case, your new finance deal will have the negative equity from your old one rolled into it – this will see you pay more in total over the lifetime of the agreements.
With the fees and potential negative equity costs, you might need to take out a new deal on a vehicle that’s quite a lot more affordable than your current car to see a meaningful reduction in your monthly costs. As always, the car retailer or finance provider you used should be able to guide you through the process.
Speak to Motorpoint
We specialise in providing top-quality nearly new vehicles at unbeatable prices. If you’re looking to lower your monthly payments or get a great finance deal on a used car, get in touch and our expert team can arrange a finance agreement tailored for you. It doesn’t matter whether you have an existing finance deal with us or with another provider, we can handle all details in store to make the process totally hassle free.
Learn more about car finance
If you want to learn more about the types of finance available to car buyers, check out our guide to buying a car using PCP, and our explainer on HP car finance. For more info on how to cut your car finance costs, read our guide to no-deposit car finance. If you’ve one eye on your credit score, take a look at our tips for getting car finance with bad credit.
