Can you refinance a balloon payment on a car?
Yes, you may be able to refinance a PCP balloon payment rather than paying the amount in one lump sum. This involves taking out a new finance agreement to cover the final balloon payment, allowing you to spread the cost over a new repayment period. Whether this option is available will depend on your individual circumstances, the vehicle and the lender's criteria.
At the end of the PCP agreement, you can usually pay the balloon payment to keep the car, return the vehicle, or use any available equity towards another a car. This guide explains how balloon payment refinance works, what lenders may consider and how hire purchase can be used to refinance the remaining amount.
A PCP balloon payment is the optional final payment you make at the end of a Personal Contract Purchase (PCP) agreement if you want to own the car. It is sometimes referred to as the Guaranteed Minimum Future Value (GMFV).
A PCP agreement works by deferring a large chunk of the car's value to the end of the contract. During the agreement you make monthly payments that cover interest and the depreciation of the car over the term, but not its full value.
The car finance balloon payment is set when you enter into the agreement, so you should know from the start how much you would need to pay if you decide to keep the car. It can substantial. On a car worth £20,000, the balloon might be anywhere from £8,000 to £14,000 depending on the term, the make and model, and how much the car is expected to depreciate. It is set at the start of the agreement and does not change.
Yes, refinancing a PCP balloon payment is possible. Balloon payment refinance can be an option for people who reach the end of their PCP agreement and want to keep the car but cannot pay the balloon in one go.
The way it works is straightforward. Rather than paying the balloon payment outright, you take out a new loan to cover it. That new loan is then repaid in monthly instalments over an agreed term. The car effectively becomes security for the new finance, and you continue driving it while making the new payments.
Not all lenders offer PCP balloon refinance as a product. Some mainstream banks will do it as a personal loan. Others, including specialist vehicle finance lenders, will refinance it as hire purchase, which means the loan is secured against the car itself.
Hire purchase can be used to refinance a PCP balloon payment by using a new agreement to cover the amount required to keep the vehicle.
The process works like this:
This approach suits people who want to keep their car and are comfortable continuing to make monthly payments, but do not have the lump sum available to pay the balloon outright.
AutoMoney Trust offers hire purchase finance from £4,000 to £25,000 over 36 to 84 months. If the balloon payment on your PCP falls within that range, you can check your eligibility with a soft search on our apply for car finance page.
Yes, you may be able to refinance a PCP balloon payment with poor credit, although approval is not guaranteed. The lender will consider your credit history alongside your current financial circumstances and whether the new repayments are affordable.
Mainstream banks offering personal loans to cover a balloon payment are unlikely to approve applicants with CCJs, defaults, or a poor credit history. HP finance from a specialist lender is a more accessible route for poor credit applicants because the loan is secured against the vehicle.
The lender will still run an affordability assessment and check your credit file, but specialist poor credit lenders take a broader view of your financial situation rather than relying solely on a credit score. The interest rate offered will reflect your credit history.
AutoMoney Trust considers applications from customers with poor credit and CCJs. For more on how lenders assess poor credit applications, see our guide on car finance with a CCJ.
Refinancing is one option but not the only one. At the end of a PCP agreement you have four routes:
For a full comparison of how PCP and HP work at the end of the agreement, see the FAQ: Hire purchase vs PCP.
If your car is worth less than the amount required to settle the PCP finance, you may be in negative equity. This means the vehicle's current market value is lower than the outstanding finance amount.
Before refinancing a car finance balloon payment, compare the vehicle's current market value with the amount you would need to refinance.
In this situation, refinancing still has options:
The FAQ The car could lose value covers how depreciation works under finance agreements and what it means for your options at the end of a deal.
The total cost of balloon payment finance depends on the interest rate you are offered and the term you choose.
A longer term reduces the monthly payment but increases the total interest paid over the life of the agreement. A shorter term costs more each month but less overall.
The interest rate will be influenced by your credit profile, the loan amount, and the lender. Rates for poor credit applicants will be higher than for those with a clean file. Always compare the total amount repayable, not just the monthly payment, when assessing whether refinancing is the right call.
Use our car finance calculator to get an idea of what monthly payments and total costs look like at different rates and terms before you apply.
You may be able to refinance before your PCP agreement ends, but you would generally need to settle the existing finance first. Some PCP agreements have early settlement fees, so check the terms of your current agreement before pursuing this route.
A more common scenario is switching from PCP to HP mid-agreement. This would involve settling the PCP, taking out a new HP agreement for the settlement figure, and continuing with HP payments going forward. This is worth considering if you are unhappy with the PCP structure or want to own the car outright at the end without a large final payment.
For more on how HP compares to PCP throughout the agreement, see our guide: hire purchase vs personal loans, which covers the key differences including ownership, risk, and what happens at the end of each agreement type.
The main difference is that with Hire Purchase (HP) you own the vehicle at the end of the agreement, whereas Personal Contract Purchase (PCP) includes an optional final balloon payment if you want to keep the car.
With Hire Purchase, you repay the full value of the vehicle through fixed monthly payments and become the owner once all payments and any option to purchase fee have been paid.
With PCP, monthly payments are usually lower because you are paying towards only part of the vehicle's value. At the end of the agreement, you can pay the balloon payment also known as a final payment) to keep the vehicle, return it, or choose another available option.
One of the main differences between HP and PCP finance is how ownership and mileage work. PCP agreements often include annual mileage limits and potential charges if the vehicle exceeds the agreed mileage or is returned with damage outside normal wear and tear. Hire purchase does not usually have mileage restrictions, making it a popular option for drivers who want flexibility and the certainty of owning the vehicle at the end of the agreement.
AutoMoney Trust offers hire purchase car finance only, providing customers buying used cars a straightforward agreement, fixed monthly payments, and the reassurance that they can own their vehicle once the agreement is completed.
Yes, your car is likely to lose value during the finance agreement. Most cars depreciate over time, meaning they gradually lose value as they age. For most used cars, depreciation continues throughout a Hire Purchase agreement, so the vehicle is typically worth less at the end of the finance term than when it was purchased.
Depreciation is important because the total amount payable on a car finance agreement includes the amount borrowed, interest, and any applicable fees. As a result, the total amount you repay over the agreement may be higher than the vehicle's market value by the time your finance ends.
Depreciation can also increase the risk of negative equity. If you decide to settle your car finance early or sell the vehicle before your agreement has ended, the car's current market value may be lower than the outstanding finance balance. In this situation, you may need to pay the difference before the agreement can be settled.
The rate at which a car depreciates depends on several factors, including its age, mileage, condition, service history, brand, model, and market demand. Keeping your vehicle well maintained and within reasonable mileage can help preserve its value over time, although depreciation cannot be avoided completely.
Some drivers also choose to take out GAP insurance, which may help cover the difference between an insurer's payout if the vehicle is written off and the remaining balance on the car finance agreement. This can provide additional financial protection particularly during the earlier years of a hire purchase agreement, when the outstanding finance may be higher than the vehicle's market value.
The length of your car finance agreement can have a significant impact on both your monthly payments and the total cost of borrowing.
Choosing a longer finance term, such as 60 or 84 months, spreads the cost of the vehicle over a greater number of payments. This can make your monthly payments more affordable, but it may mean you pay more interest overall throughout the agreement.
A shorter car finance term, such as 36 months, usually results in higher monthly payments because the balance is repaid over a shorter period. However, paying the agreement off sooner can reduce the overall amount of interest paid, making it a potentially lower-cost option over the full term.
When choosing the right finance term, it is important to consider your budget, monthly affordability, and how long you plan to keep the vehicle. The best option is one that allows you to comfortably manage your payments without putting unnecessary pressure on your finances.
AutoMoney Trust offers car finance terms from 36 to 84 months, giving you flexibility to choose an agreement that suits your circumstances. Use our car finance calculator to compare different term lengths and understand how your monthly payments and overall costs could change before applying.
The main difference between fixed and variable car finance rates is whether the interest rate can change during your agreement. A fixed interest rate means your rate and monthly car finance payments stay the same throughout the finance term, giving you certainty over what you'll pay and making it easier to budget. In comparison, a variable interest rate can rise or fall over time, meaning your monthly payments may change.
AutoMoney Trust offers fixed-rate hire purchase car finance only, so you know exactly what your monthly repayments will be for the full term of your agreement. While fixed rates may sometimes be higher than an introductory variable rate, they provide protection against future interest rate rises and make it easier to plan your finances with confidence.
When comparing car finance options, it's important to consider not only the interest rate but also the APR, total amount payable, and the overall cost of borrowing. For more information read our guide on What Is Car Finance APR?.
