Could you save money by refinancing your car?

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Car finance website Carmoola claims it can save drivers money by refinancing their car. We’ve looked at how it works.

Carmoola has launched an “automatic financing” service which it estimates can save motorists hundreds of euros in just minutes.

According to the site’s research, 3.7 million (7%) motorists are currently feeling the pinch of existing car finance payments.

One in seven (14%) admitted that although they had actively switched energy, broadband or mobile phone providers in the past, they had never considered switching car loan providers to save money.

Another in six Britons (16%) believe that once you have agreed on a vehicle you are locked in with that supplier. But Carmool says it’s “a common misconception”.

Carmoola co-founder Aidan Rushby says: “We are becoming more savvy in many ways, but that seems to be a real blind spot for many motorists. We encourage all drivers to find a better deal.

“The amount you’re likely to save will vary from individual to individual, but if your credit score has improved significantly since you entered into your original agreement and made your payments on time, that could be a considerable amount.

“A lower interest rate could significantly reduce your monthly payments, while opting for a longer contract term could also reduce your monthly expenses if you are looking for greater affordability.”

How to save on car financing

Millions of motorists finance the purchase of a new vehicle with a lease-purchase (HP) agreement or an automobile loan.

HP is a type of loan, but you don’t own the car until the end of the contract. This means your vehicle can be repossessed if you don’t repay on time.

Auto loan is a type of personal loan used specifically to purchase a car. You agree on a term and a monthly payment with the lender. Unlike HP, you own the car from day one.

If you have HP or a car loan, you may be able to lower your payments by refinancing with another lender. To do this, you will need to settle your current contract and then start a new (cheaper) one.

So the first thing you should do is contact your existing lender and ask for an early settlement quote.

In the meantime, you can obtain a new financing quote from another lender such as Carmoola. The app does a soft credit check, so getting a quote won’t affect your credit score or any future inquiries you make.

If the new offer is better than yours, Carmoola allows you to repay your existing loan in just a few clicks. You then make payments on the new loan.

However, Carmoola cannot refinance Personal Contract Purchase Agreements (PCP). PCP is a type of loan, but you don’t borrow the full price of the car. Instead, you borrow the difference between the car’s value and the expected value at the end of the contract. At the end of the term, you have the option of purchasing the car by making a “lump sum payment”.

If you have a PCP plan, a Carmoola loan can be used to pay the lump sum payment payable at the end of the transaction to take possession of the car. However, it cannot be used to exit the PCP diet early.

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