If you are thinking about settling your car finance before the end of the initial end date, it can be a little confusing on how to approach it. Find out how to go about navigating an early settlement or partial settlement of your car finance agreement. 

What is a Car Finance Settlement Figure?

A car finance settlement figure is the total amount you need to pay to your lender to fully clear your car loan before the end of the agreed upon loan term. 

The figure usually includes: 

• Remaining Principal: In simple terms, this is the outstanding balance of the loan, which is the amount left to pay on the original sum borrowed (this excludes interest).
• Accrued Interest: The interest that has accumulated on the remaining loan amount up until the point that the finance agreement will be settled.
• Additional Fees: Depending on the terms of your loan agreement with the lender, there may be additional fees for early settlement. These can include administrative charges or ‘penalties’ for early repayment.

Calculating Your Early Settlement Figure

The settlement figure will be administered by your lender, who will consider and calculate the amount based on your specific loan terms and car finance agreement. This will be subject to any administrative or fees that the lender imposes.

Under the Consumer Credit Act (CCA), you have the legal right to a settlement figure and to settle your agreement early – entitling you to a rebate of interest charges for the remaining loan period. This means you won’t have to pay interest on the remaining part of your repayment plan if you settle early.

Understanding Your Options

When you make a partial settlement on your car finance, it means that you are reaching an agreement with your lender to settle your account for less than the total amount remaining on your finance agreement (what you owe).

Determining the amount for a partial settlement varies, and it is up to your lender who will consider your specific finance agreement conditions and circumstances. Each car finance company has its own approach to assessing accounts for partial settlement.

In the case of a partial settlement, your lender may offer a discounted settlement arrangement, or you can present an offer to your lender. While this settles your debt, it's recorded on your credit report as 'partially settled', which can impact your credit score and you should discuss this with your lender. Understanding the impact of a partial car finance settlement and how it affects your credit score is really important for those exploring this option.

If you would like to know more about credit scores, including tips on how to boost your credit score, check out our other posts that help break down the industry jargon for you. 

The Process of Obtaining a Settlement Figure

To obtain a full or partial settlement figure, you will need to contact your lender. They will calculate the total amount due, including any fees and the impact of a partial settlement. Again, for those seeking car finance settlement advice, you must remember that this figure is subject to change based on your loan's terms and the lender's specific policies.

PCP Car Settlement Figures 

In Personal Contract Purchase (PCP) agreements, please be aware that the settlement figure usually includes the final balloon payment. This needs to be considered when contemplating a partial settlement, as it affects the total amount you owe.

So, Is Settling Your Car Finance Early Right for You?

For those considering early settlement of car finance, assess your financial situation thoroughly. Factors like early repayment fees, negative equity, and your future financial plans should influence your decision.

Alternatives to Settlement

For some people, voluntary termination of the finance contract might be a more suitable option than paying a settlement figure. It’s a viable alternative for those researching early car finance termination options.

Check out our article about voluntary termination to get up to speed!