Drivers urged to used free Martin Lewis MoneySavingExpert tool to check if they can cut car bills by £1,000s
MoneySavingExpert has launched a new tool that lets you see if you can save by refinancing your car if you're on a Personal Contract Purchase (PCP) or Hire Purchase (HP) deal.
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You might not have heard about car refinancing before but it is essentially when you take out a new, cheaper loan or car finance deal to pay off your existing deal.
Getting your car refinanced could save you hundreds of pounds in interest, or in some cases more than £1,500.
Whether you're able to save will largely depend on the interest rate you're currently paying, as well as how much and how long you have left to pay.
It can also depend on whether your credit history has improved since you took out a deal.
How do you use the tool?
You'll need to have some information to hand first.
For example, you will need to know the type of car finance you have, how much you borrowed, what your monthly repayment is and the amount you'd need to pay at the end of the deal to own the car.
You should also know when you took out the finance deal and the total length of time you took it out for.
Plus, you should have an idea of your credit history.
You don't need to give your exact score but you should be able to say whether it's "pretty good", "okay" or "not great".
If you're not sure you can check your score for free using one of the three main credit reference agencies: Experian, Equifax and TransUnion.
Five steps to get a better deal on your next car
When you're ready, you can find the Car Finance Checker tool here: https://www.moneysavingexpert.com/loans/car-refinancing/.
The tool will be able to tell you whether you're likely to save by switching.
It will also give you an estimated settlement figure (the amount you'll need to borrow to pay off your existing deal).
Before you can take out a new deal you'll need to settle your old finance agreement - and you can do this either using a loan or by using your new finance to pay off the old one.
Check whether you can get a loan
If it looks like you can cut your costs, you should check first whether a loan is cheaper.
People who have plenty in savings should opt to use that first, but if you don't then it's worth looking at loans.
The cheapest loans will generally give you a better deal than car finance unless it's already at 0% APR.
Remember, your ability to access the cheapest loans will depend on your credit history - so if you have poor credit you might not be able to get them.
You should then check whether the interest rates of the loans you're eligible for are cheaper than your current car finance deal.
It's worth noting that you may not want to opt for a loan if you don't want to own the car at the end of the deal.
If your current car finance is a PCP deal, it will have a "balloon payment" at the end - which is the amount you'll need to pay to own the car.
Taking out a personal loan means you'll be borrowing the total amount of finance you have left to pay off, which includes the balloon payment.
Therefore you'll likely see your monthly payments increase, even if the interest rate on the loan is cheaper and you end up paying less overall.
Make sure the payments are affordable for you, and if you don't want to eventually own the car you're likely better off looking for a cheaper car finance deal.
If you choose to go for a loan, you should get your settlement figure from your current car finance lender and make sure you can get a loan for that amount.
Assuming you're accepted for the loan, you can use it to pay off your old car finance deal.
You should be able to do this online or call up your lender to settle the payment.
Your new lender should then set you up with a direct debit so you can make your new monthly payments.
Consider a cheaper car finance deal
If you can't or don't want to save with a loan, you can look for cheaper car finance.
Some specialist car finance lenders will pay off your old car finance and get you set up with a new deal.
You can compare new deals using Motiv or Experian - it may be worth checking both in case they have different lenders or rates.
Again you'll need to get the settlement figure from your current car finance lender.
You may be able to check this online or you might need to call them up and ask how much it would cost to settle your finance deal.
When you contact the new lender, you will need to give them full details about yourself and your car.
The new lender will pay off your old car finance lender for you, meaning they will be the new owner of your car until the finance is paid off.
You can then pay your monthly repayments to the new lender.
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