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Secured Loans
Refinancing car finance with a secured loan can lower your monthly outgoings, but it means securing the debt against your home instead of your car. Here's how to work out whether it's the right move for you.
Yes, a secured loan can be used to pay off car finance. You borrow a lump sum secured against your property, use it to settle your existing car finance agreement in full, and then repay the new loan over a term you choose.
Whether refinancing makes sense depends on your remaining car finance balance, how much equity you have, and your credit profile. Speaking to an advisor before you apply is the best way to understand your realistic options.
If you're looking at a secured loan to pay off car finance, the appeal usually comes down to one thing: the potential difference in interest rates. Car finance arranged through a dealership, especially PCP and HP agreements, often carries a much higher rate than borrowing secured against your home.
Paying off your existing car finance with a secured loan means you gain full ownership of the vehicle as soon as the settlement goes through. From that point you're free to keep it, sell it, modify it, or drive as many miles as you like, none of which apply while the car is still on finance.
Car finance rates vary widely depending on how the agreement was arranged and your credit profile at the time you took it out. Dealer-arranged PCP and HP deals tend to charge more than mainstream personal borrowing, and rates climb further for anyone with a less-than-perfect credit history. Some specialist car finance providers charge significantly more again.
Secured loans work differently. Because the loan is backed by your property, the lender is taking on less risk, and that's usually reflected in a lower rate than you'd get on unsecured car finance. The exact rate you're offered depends on your credit profile, the loan amount, and how much equity you have, so it's worth speaking to an advisor to get a realistic picture for your circumstances rather than relying on headline figures.
The trade-off that runs through this whole guide is simple: spreading the same balance over a longer secured loan term can bring your monthly outgoings down noticeably, even though the total amount repaid over the full term could end up higher.
The main reasons homeowners look at refinancing car finance with a secured loan include:
The numbers can look attractive on paper, but the real picture depends on your remaining balance, your current rate, and the term you choose for the new loan.
Stretching repayments over a longer term reduces your monthly payment, but it usually increases the total interest you'll pay over the life of the loan. The total cost and the size of your potential saving vary depending on the lender, the loan amount, and the term you choose, so the only way to get an accurate comparison is to get quotes for your specific circumstances.
The wider range of terms available on secured loans is what creates the trade-off: a longer term can bring your monthly payment down substantially, but it also means paying interest for longer.
One of the biggest decisions when refinancing car finance is how long to spread the new loan over. A longer term reduces your monthly payment but increases the total interest you pay. A shorter term keeps the total cost down but means higher monthly payments. Neither approach is wrong, it depends on whether monthly cash flow or total cost matters more for your situation right now.
If monthly affordability is your priority, a longer-term secured loan can free up a meaningful amount of cash each month, even though you'll likely pay more in total interest over the life of the loan. If total cost matters more, keeping the term as short as you can comfortably afford will minimise the extra interest, though the monthly saving compared to your current car finance may be smaller.
Refinancing car finance doesn't always make sense. Here are situations where it's often not worth it:
Whether refinancing makes sense ultimately depends on your personal and financial circumstances, including your credit history, your current agreement's terms, and how much you have left to pay.
Don't just compare the monthly payment. Ask for the total amount repayable on both your existing car finance and any secured loan quote, over the full term. That's the only way to see whether refinancing genuinely saves you money or just moves the cost further down the road.
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Our advisors compare options from a wide range of lenders to see what's realistically available for your situation.
Before working out potential savings, it's worth understanding whether you're likely to qualify for a secured loan to cover your car finance. Most UK residents aged 18 or over can apply, though you'll still need to meet each lender's own criteria.
Lenders use credit reference agencies to check your credit history and repayment record as part of assessing your application. Getting a quote through us doesn't affect your credit score, as this stage typically only involves a soft search.
Lenders assess whether you can comfortably afford the new secured loan payment alongside your existing mortgage and any other financial commitments.
Your credit profile affects both approval likelihood and the rates available to you.
If you're right on the edge of a lender's equity or affordability criteria, a specialist lender may still say yes where a mainstream one says no. This is exactly the kind of case where speaking to an advisor before you apply anywhere can save you a wasted credit search.
Understanding the full cost picture prevents nasty surprises. Here's everything you might pay when refinancing car finance with a secured loan, on top of the loan itself.
Before you can pay off car finance, you'll need a settlement figure from your current lender, not just the outstanding balance shown on your last statement.
Settlement figures are usually only valid for a limited period, so it's worth timing your request to line up with your secured loan application.
Secured loans involve upfront costs that you'll either pay directly or add to the loan amount. Costs vary between lenders and brokers, so it's worth comparing what's included before you decide.
Some lenders let you add these fees to the loan amount rather than paying them upfront, though you'll pay interest on them across the term if you do.
When you compare refinancing options, look at more than just the monthly payment. Ask for the total amount repayable over the full term, for both your current car finance and any secured loan quote, including all setup costs. A secured loan can reduce your monthly outgoings while still costing more overall if the term is significantly longer, so it's worth getting both figures side by side before you decide.
Taking out a secured loan to pay off car finance means converting unsecured debt into debt secured against your home. This carries a genuine risk that's worth thinking through properly before you go ahead.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. This isn't just a regulatory warning, it's the fundamental risk of secured borrowing. If you fall behind on a secured loan, the lender can ultimately take steps to repossess your property to recover the debt. That's a very different outcome to falling behind on car finance, where the worst case is losing the vehicle.
Before proceeding, it's worth honestly asking yourself:
If you're worried about keeping up with existing debt repayments, free and impartial guidance is available from MoneyHelper on 0800 138 7777.
While monthly payments typically fall when you refinance, extending the term can mean paying more in total interest over the life of the loan. That's not necessarily the wrong choice, if monthly cash flow is your priority and you're comfortable with the total cost, it may still make sense. Just go in with your eyes open about the trade-off.
Many secured loans carry early repayment charges for the first few years, typically reducing the longer you've held the loan before an early charge no longer applies. If there's a reasonable chance you'll want to repay early, come into money, or sell your property, factor these charges into your decision. It's also worth checking how interest is calculated on your loan, since paying off early or making overpayments can sometimes mean you pay more interest overall rather than less, depending on the lender's policy.
A secured loan creates a second charge on your property and appears on your credit file, which affects your future borrowing capacity. If you're planning to remortgage or move house in the next few years, it's worth thinking about how the additional secured debt might affect your options.
That said, clearing high-cost car finance and replacing it with lower-cost secured borrowing can improve your overall debt-to-income position, which may help rather than hinder a future mortgage application.
If you've decided to explore this option, here's what applying for a secured loan to pay off car finance typically involves, from getting your settlement figure through to the funds reaching your account.
How it works
Get your car finance settlement figure
Contact your current car finance provider and request a settlement figure. This tells you exactly how much you need to borrow to complete the car purchase. Settlement figures are usually only valid for a few weeks, so time your request to fit your application.
Check your secured loan options
Speak with a broker who can search across a range of lenders to find options that match your circumstances. A <a href="/loans/secured-loans/calculator/">secured loan calculator</a> can give you an early indication. At this stage, any credit checks should be soft searches that don't affect your credit score, so you can compare quotes from several lenders safely.
Compare the numbers properly
With your settlement figure and secured loan quotes in hand, compare the total amount repayable over the full term, not just the monthly payment, and check whether you can comfortably afford the new commitment alongside your other outgoings.
Make a formal application
Once you've chosen a lender, you'll complete a full application. This involves a full credit check, income verification through payslips or accounts, a property valuation to confirm your equity, and legal work to register the charge on your property.
Settle your car finance
Once your secured loan completes, the funds are released, either paid directly to your car finance company or transferred to your account for you to forward on. Make sure you get written confirmation that your car finance is settled in full and any finance interest in the vehicle is removed.
A secured loan isn't the only way to deal with expensive car finance. It's worth weighing up these alternatives before committing your home as security.
Other options
Remortgage to release equity
If your current mortgage deal is ending, remortgaging might let you release funds without taking out a separate secured loan. See our guide on <a href="/loans/secured-loans/vs-remortgage/">secured loan vs remortgage</a> for how the two compare. The trade-off is the cost and effort of remortgaging, and tying the car debt to a much longer mortgage term.
Personal loan
If you have good credit and don't need to borrow a large amount, an unsecured personal loan might be a competitive option without putting your property at risk. Approval tends to be faster, though rates can be higher than secured borrowing for larger amounts, and credit requirements are stricter.
Part-exchange or change car
Depending on your car's value against the finance balance, part-exchanging for a less expensive vehicle might clear the debt outright. This gives you a fresh start, but you may still have a shortfall to fund, and it means giving up your current car.
Continue with your current finance
Sometimes the best option is staying put, particularly if your remaining term is short or your current rate is already competitive. There are no new costs or effort involved, but you'll continue with your existing monthly payments and won't make any interest saving.
Here are illustrative examples of how homeowners in different situations have approached using a secured loan to pay off car finance. Details have been adapted to protect privacy.
A family with two cars on finance, a family SUV and a commuter car, found the combined monthly payments were stretching their budget. They consolidated both agreements into a single secured loan, spreading the balance over a longer term. Their new combined monthly repayment dropped substantially compared to running two separate car finance agreements, though extending the term meant paying more interest in total. For their circumstances, the improved monthly cash flow outweighed the extra cost, and both cars are now owned outright with no mileage or condition restrictions.
One customer had originally taken out car finance through a specialist lender while rebuilding his credit after a difficult period. A couple of years later, his credit profile had improved enough to qualify for a secured loan at a noticeably better rate than his original agreement, even though his credit was still only fair rather than excellent. His monthly payment fell significantly, giving him breathing room while he continued rebuilding his credit.
Another customer had a PCP agreement with a large final balloon payment and had exceeded her mileage allowance, facing excess mileage charges if she returned the car. She used a secured loan to settle the agreement early, covering the remaining payments, the balloon payment, and the setup costs. This let her avoid the mileage charges, own the car outright, and remove the driving restrictions that came with the PCP deal.
We're a broker specialising in secured loans for UK homeowners. Our job is to compare options from a wide range of lenders to find what matches your circumstances, whether you have an excellent credit history or you've had financial difficulties in the past.
We're paid commission by the lender if your application completes, but this doesn't affect the advice we give or which products we recommend to you.
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Common questions
Yes. A secured loan gives you a lump sum that you use to settle your existing car finance in full, then you repay the new loan over a term you choose. You'll need to own a property with sufficient equity and meet the lender's affordability criteria, and you'll need to sign a new loan agreement before funds are released.
It depends on your current car finance rate, the secured loan rate you can access, and how long you spread the new loan over. Monthly payments typically fall because secured loans tend to have lower rates and can run over a longer term, which helps with day-to-day budgeting. However, a longer term can mean paying more in total interest, even if your monthly payment is lower. It's worth comparing the total amount repayable, not just the monthly figures, before deciding.
There's no single minimum credit score that applies across all lenders. Mainstream lenders typically look for a solid credit history, while specialist lenders on our panel consider applications from people with past defaults or other credit issues. Your credit profile affects the rate you're likely to be offered as well as which lenders will consider your application.
Most lenders want you to retain at least 15-20% equity in your property once the new loan is in place. For example, if your property is worth £300,000 and you have a £220,000 mortgage, you have £80,000 equity. Borrowing £15,000 to clear car finance would leave you with £65,000 equity, which would typically meet most lenders' requirements.
From initial enquiry to receiving funds typically takes a few weeks, though this varies. You'll need to check your eligibility and submit an application, then review and sign the loan agreement before funds can be released. How quickly you provide documents, book a valuation, and complete the legal work all affect the overall timeline.
Once your car finance is settled using the secured loan, you own the vehicle outright with no finance interest remaining. You're free to keep it, sell it, modify it, or drive as many miles as you like. If you originally had a PCP agreement, the mileage and condition restrictions no longer apply.
Your existing mortgage continues unchanged. However, you'll need your mortgage lender's permission, known as consent to second charge, before taking out a secured loan. The new loan creates a second charge on your property, which could affect future remortgaging.
Most secured loans allow early repayment, though many charge an early repayment fee during the first few years, which typically reduces the longer you've held the loan. If there's a reasonable chance you'll want to repay early, it's worth looking for a loan with lower or no early repayment charges, and checking how the lender calculates interest, since overpaying can sometimes mean paying more interest overall rather than less.
Self-employed applicants can access secured loans, though you'll typically need to provide two or three years of accounts or tax returns to verify your income. Some lenders are more flexible with self-employed applicants than others, and we work with lenders who understand contractor, freelancer, and business owner income patterns.
Yes. A secured loan is secured against your property, which means the lender can ultimately take steps to repossess and sell your home if you don't keep up payments. That's a fundamental difference from car finance, where the worst outcome is losing the vehicle. Only go ahead if you're confident you can maintain the new payments.
Yes, many homeowners use a secured loan for <a href="/loans/secured-loans/debt-consolidation/">debt consolidation</a> alongside car finance, combining credit cards, personal loans, or overdrafts into the same agreement. Combining several payments into one can make budgeting simpler, but remember that all the consolidated debt becomes secured against your home.
Owing more than your car is worth doesn't prevent you from refinancing with a secured loan, because the loan is secured against your property rather than the vehicle itself. You can still use the funds to settle your existing car finance. It's still worth thinking carefully about whether refinancing makes sense given the car's value though, since you'll owe the full amount regardless of how much the car has depreciated.
Yes. Alternatives include remortgaging to release equity, taking out an unsecured personal loan if the amount and your credit profile suit it, a 0% balance transfer card for smaller amounts, or simply continuing with your current car finance. The right option depends on your credit profile, how much equity you have, and what matters most to you: monthly affordability or total cost.
Refinancing usually makes sense if you have meaningful equity in your property, your current car finance rate is clearly higher than the secured loan rates you can access, you have a reasonable balance remaining, and you're comfortable with your home being used as security for the debt. It's generally less suitable if your car finance rate is already low, your equity is limited, or you're not comfortable with secured borrowing. Speaking to an advisor about your specific circumstances is the best way to find out.
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