Tips to reduce your monthly car payments

Many buyers choose to purchase their cars on finance. This way, you don’t have to come up with a large lump sum to buy the car you want, and can instead factor it into your monthly outgoings. However, with living costs on the rise, you might be feeling like your car’s monthly payments are putting a lot of pressure on your purse strings.

This guide will talk you through the options that might be available to you to reduce your payments. Be aware that, in almost all circumstances, reducing your monthly payments usually means accepting a longer finance contract, which will see you pay more in total over the lifetime of the agreement as you’ll have more interest to pay.

If you bought your car on finance from Motorpoint, the easiest way to get a solution tailored to you is to get in touch with us. You can speak to us in store, phone us on 01332 227 227, or use our live chat feature to talk to a member of our team.

Refinancing a PCP agreement

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. Contact the car retailer or finance provider you bought your car from and they’ll take care of the nitty-gritty details but, in simple terms, they’ll pay off what you owe on 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, which means you’ll pay more in total for the vehicle thanks to the extended interest payments, but your monthly bill will end up lower than your current agreement.

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, but that’s because you won’t own the car at the end of the agreement, you’ll only have paid for the amount of value it’s lost during your time with it. To fully own the car, you’ll have to pay the optional final balloon payment, which can often be a large lump sum.

If you can’t afford this payment in one go and want to keep the car rather than hand it back to the finance company, you can refinance the optional final balloon payment. This will allow you to keep the car and own it once you’ve paid off the debt you owe on the balloon payment. You will have to continue making payments until the balloon is paid off, but these will be noticeably 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 quite a lot more over the lifetime of the finance deal.

In this circumstance, contact your finance provider and ask if they can offer you a refinanced agreement with a lower monthly payment. If this is possible, they’ll invariably offer you an agreement over a longer period of time – this will see your monthly payments go down, but the total amount you’ll pay go up thanks to paying interest over a longer period of time.

Be aware that, if you refinance your PCP agreement before it ends, you might be affected by negative equity in your vehicle. This will be because, at the point in your agreement you’re wishing to refinance the car, it is worth less than the 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 can limit 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 only one option available to you to cut your costs – handing back the vehicle and ending the agreement, in what’s called voluntary termination.

If you’ve paid off more than half the value of the vehicle in a HP deal, your finance provider will normally take the car back without any further costs provided it’s in good condition. While this isn’t a desirable option because you won’t get any of the money you paid back and you can’t keep the car you were paying for, 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, whereas missing a repayment will have a negative impact.

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 technically 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 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.