Can I pay off my car finance early?

You’ve found your dream car, signed the finance agreement, and started your repayments, but life doesn’t always go according to plan. If your car finance is no longer a good fit, don’t worry! Paying off your car finance early is possible, and we’re here to guide you through your options.

What reasons should I end my car finance early?

Life changes, and a car finance agreement can last up to six years. Here are some reasons you might consider settling early:

Job changes

If you’ve switched jobs, been made redundant, or your financial situation has changed, keeping up with payments might become difficult.

Financial considerations

You might want to save money on interest by paying off the balance earlier.

Lifestyle changes

Maybe your family has grown, or you’ve moved and need a different type of car, like a 4x4 for the country or something slightly smaller and nippier for city living.

Ending a HP or PCP agreement early

There are a couple of ways you can settle early depending on your situation.

Early repayment

If you want to pay off the car earlier than the originally agreed term length, you can request a settlement figure from your lender. This is the remaining balance minus any future interest you won’t need to pay. Some agreements may also involve early settlement fees, so check your contract or contact your lender for specifics.

You can choose to pay the full settlement amount in one go and once that payment is made, the car is yours, congratulations! You can sell it, trade it in, or even give it a makeover. If settlement in full isn’t the option for you, you can choose to refinance with a new loan agreement.

Voluntary Termination

If you’re struggling with monthly payments or no longer need the car, you can return a car on finance with voluntary termination.

This is your statutory right under section 99 of the Consumer Credit Act 1974. You can return the car to the lender, but you must have paid at least 50% of the total amount payable (including the balloon payment in a PCP). If you haven’t reached this point, you’ll need to pay the difference.

If you’ve already paid more than 50%, you can return the car and walk away without any further payments, although extra charges may apply if the car has damage beyond fair wear and tear. It’s important to note that you’ll still be responsible for any missed payments prior to termination.

What are the risks of ending agreements early?

A car financing agreement is a legally binding contract, so there are a couple of things to be mindful of when settling early:

Negative equity

If your car's market value has dropped more than you expected and is worth less than the settlement figure, you could end up in negative equity. In this case, you may have to pay the difference if you choose to trade it in or sell it. It’s always worth checking the car’s current value before making any decisions.

Fees and penalties

Some additional costs might pop up if you decided to voluntarily terminate your agreement. For instance, if you choose to return the car and it's in worse condition than expected (more than just normal wear and tear), or with mileage that exceeds the terms of your agreement, you could face extra charges.