How soon after buying a car can I refinance?

You can usually refinance a car loan at any time, but some lenders may suggest waiting around six to twelve months to reduce the likelihood of early settlement fees. Waiting may also give you time to build a stronger credit profile.

What happens if my refinance application is denied?

If your application is declined, the lender may provide a reason. This might relate to your credit score, affordability checks, or the age or condition of the car. Once you know the reason, you can take steps to improve your chances, such as improving your credit score or waiting until your situation becomes more stable before applying again.

What happens once my refinance has been approved?

When your old finance agreement is settled, it’s usually replaced immediately with your new agreement. You’ll receive details of your new monthly payment, interest rate, and your first payment date. From then on, you’ll pay your new lender. If anything is unclear, reach out to them for clarification.

How quickly will my old loan be paid off?

Once your new loan is approved and you’ve agreed to the terms, the new lender will pay off your existing agreement directly. This usually happens within a few working days. You should keep making payments until you receive confirmation that your old loan has been closed.

Do I need to contact my current lender before I refinance?

Yes. Your current lender can confirm your settlement figure and whether there are any early repayment fees. This helps you understand whether refinancing will benefit you and gives you accurate figures to compare against new offers.

What documents do I need to refinance my car?

Lenders may ask for proof of identity, recent proof of income, and the details of your current finance agreement, including your settlement figure. You may also be asked for basic information about your car, such as mileage or your V5C. Having these documents ready could help make the process quicker and smoother.

How does car refinancing work?

Written by Louis Rix Updated 08 Jan 2026

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If you’re already paying for car finance and want to see if you could switch your deal or even bring your monthly costs down, refinancing could be an option. Refinancing simply means taking out a new loan to settle your current one. People may consider it if their financial situation has changed, their credit score has improved, or they want to see if they could get a more affordable monthly payment. It’s always important to bear in mind that although extending your current loan of a longer term could reduce monthly payments, it may increase the total amount of interest payable.

So, how does car refinancing work exactly, and what is the process of refinancing a car? In this guide, we’ll walk you through it and help you work out if it's the right move for you.

Refinancing a car: Step-by-step process

Rates from 8.9% APR. Representative Example: Borrow £12,000 over 5 years with a £0 deposit. Representative 19.8% APR fixed rate. Monthly payment: £306.04. Option to purchase fee £10 payable. Total cost of credit: £6,372.40. Total amount repayable: £18,372.40.
Car Finance 247 Limited is a credit broker, not a lender.

1) Review your current loan status

Start by looking at your current loan and find out how much you still owe, what your interest rate is, and how long you’ve got left. If you’re hoping to alter your monthly payments, these details could help you work out what’s realistic.

It’s also worth checking whether your lender charges early repayment fees, as these may affect how much you’d actually save.

Check out our guide on understanding your car finance agreement beforehand if you’re not sure on some of the terms and conditions.

2) Check if you meet the eligibility criteria

Before applying, you may want to make sure you meet the eligibility criteria for a loan. This is especially important if your financial situation has changed since your original loan. You might find you’re actually in a better position than before, especially if your credit score has improved. Or, you may need to explore lenders who specialise in bad credit car finance.

Checking you’re eligible first could help you avoid applying for deals you’re unlikely to be accepted for. Finance is subject to status and eligibility.

3) Shop around for the best deal

You may want to shop around for a deal. Different lenders can offer different rates and terms, so take time to compare monthly payments, interest rates, loan lengths and any extra fees or charges.

If you’re looking to reduce monthly outgoings, comparing different term lengths could help you find a new deal that works best for your budget. But remember, this won’t necessarily save you money overall.

4) Submit your application

If you’re happy you’ve done your research, it’s time to apply! The application process usually includes a couple of key steps.

Undergo credit checks

Lenders will often run a credit check as part of the application. At Car Finance 247, we use a soft search to give you a quote. If you proceed, a hard search will be conducted which may impact your credit score.

Review and negotiate loan terms

If you get an offer you want to accept, be sure to read through the terms carefully. If something doesn’t feel quite right, ask questions

5) Finalise your new loan

If you’re approved, your new lender will pay off your existing finance agreement. After that, you’ll start making payments on your new loan, hopefully at a rate that feels more comfortable for you.

Tips for a smooth car refinancing process

Now you know how refinancing a car works, you can decide if it’s the right decision for you. Before you do, it’s important to be aware of some common pitfalls people can make. Here’s what to think about and how to avoid making them:

● Extending your loan without realising the impact – A longer loan term can reduce your monthly payments, but you might end up paying more overall in interest. It’s worth double checking the total cost before you commit.

● Not paying attention to refinancing fees – Some lenders may charge admin fees or early repayment fees. These are important to factor in because they could affect how much you actually save.

● Not shopping around – If you only look at one offer, you might miss out on a better deal somewhere else!

● Refinancing too often – Multiple applications that run a hard credit search could affect your credit score.

● Missing the fine print – Always check the details. Anything from payment dates to processing fees could make a difference so it’s important to check your contract thoroughly.

Useful tools and resources

If you’re not sure whether refinancing is right for you, the Car Finance 247 refinance calculator is a helpful place to start!

It could also be a good idea to check your credit score. If your score has improved since you first took out your car finance, you might qualify for better rates. And if you want to try and boost it further, take a look at our guide on how to improve your credit score.

If your money situation has changed a lot or you’re unsure what the best move is, speak to a qualified financial advisor before making any decisions. They can walk you through your options based on your personal circumstances.

Finally, keeping an eye on car finance interest rates could help you apply at the right time. This is especially useful if you’re still researching and want to wait for the most competitive deals.

The takeaway

Refinancing can be a handy way to switch to a new deal especially if your financial situation has changed or you feel your current loan no longer suits you. By understanding how refinancing a car works, you can decide whether it’s the right choice for you.

If you want to learn more, explore our guides and blogs, including topics like how to trade in and refinance seamlessly and refinancing a balloon payment on pcp.