It happens pretty often. You take out a car finance agreement for three or four years, and guess what! Circumstances change what was a good idea at the time is no longer. If you decide to terminate your current finance agreement early – you’ll need to apply for a car finance settlement figure. You can request the settlement figure from your finance provider.
Calculating an early settlement figure may not be as straightforward as you think. For example, a calculation for PCP car finance with a balloon payment is more complex than an HP contract, and the savings might not be as much as expected. You’ll need to pay the finance company early repayment fees that include charges for loss of interest you won’t be paying and administration costs.
Why do you need a Car Finance Settlement Figure?
A car finance agreement can last up to five years. A lot can change in that time. There are many reasons you may want to pay your car finance agreement early:
- Perhaps you must change the two-seater Roadster to accommodate a baby seat!!!
- Less likely, but maybe you’ve won the lottery and want to pay off the remaining monthly payments.
- You’ve just had your hours cut down at work and need to make savings; you’ll walk instead for a few months until things improve.
- You want to refinance your car. Your credit score has increased, and you want to save money by taking advantage of much-improved interest rates.
The occasions when you might require an early settlement figure are numerous.
Can you get a Settlement Figure on a PCP Car Finance Agreement?
Settling car finance with lenders early on a PCP agreement is tricky compared to other car finance agreements, such as an HP deal. It is the balloon payment that can confuse.
- If you return the vehicle, you’ll owe a settlement figure, including fees for settling early.
- It will cost a lot more money if you want to pay the finance early and keep the car to become the legal owner. Not only do you incur the early settlement fees there is also the Optional Final Payment (Balloon payment) to pay off.
Suppose you have already repaid half the (total finance value of the vehicle, including the GMFV or balloon). You can return the car to the finance provider under the Consumer Credit Act 1974.
NOTE: With most car finance agreements, when you have paid monthly payments equal to half the car’s value, you’ll be about mid-way through the length of the contract. However, with PCP, you are unlikely to have made monthly payments equal to half the vehicle’s value by the time you are at the mid-point of the agreement – that is because the balloon payment, which is a large chunk of the car’s value, is deferred until the end of the agreement.
When you settle the payment for the car early, the interest the lender was to collect on the finance would be less than expected. The lender will charge fees for settling early. These charges are shown in the initial documentation agreement you receive when you take out the car finance. However, lenders will often waive some of the settlement figures if you upgrade and take out a new car loan with them.
Can you get a Settlement Figure on an HP Car Finance Agreement?
Car loan settlement figures are considerably easier to manage on an HP agreement than when you settle on a PCP.
With an HP finance agreement, the repayments are much higher than for the equivalent vehicle on a PCP. As the car’s total value is included in the monthly repayments when the contract ends, you own the vehicle—no lump sum to pay like there is with a PCP.
When you have paid 50% of the car’s value, you can legally give the vehicle back to the lender as stated under the Consumer Credit.
Can you get a Settlement Figure on a Personal Loan?
The benefit of a personal car loan is you receive the money, buy the vehicle from the dealer, and straightaway you are the vehicle’s legal owner. You’ll still have the loan’s monthly repayments, but the finance company has no hold on the car.
However, suppose you wish to repay the personal loan early. In that case, you’ll still request a settlement figure and have to pay early settlement fees.
Is a Car Finance Settlement Calculator accurate?
Unfortunately, a car loan settlement calculator cannot provide a trustworthy early settlement figure. A car finance agreement has too many variables for these calculators to return a reliable settlement figure.
How can you find out your Car Settlement Figure?
For an accurate settlement figure, contact your lender to receive your settlement figure over the phone, via email or post. Car finance settlement figures are usually valid for 28 days from your request date, after which you will have to ask again.
Once you pay the remaining finance, you’ll own the vehicle outright – the lender will confirm this in writing, and you must keep this letter safe.
Is a PCP Balloon payment the same as a Settlement Figure?
The Optional Final Payment or GMFV (Guaranteed Minimum Future Value) is the Balloon payment. Still, despite all these confusing names and abbreviations – it is NOT the car finance settlement figure.
One of the pluses of a PCP is you don’t need to decide to give the car back or pay the Balloon to own the vehicle until the end of the agreement.
What are Early Settlement Fees?
Most car finance companies charge an early settlement fee. Assuming you want to clear your car loan early, you’ll likely have to pay early repayment fees. These charges typically amount to one or two months’ interest you would have otherwise paid. Check your contract for the precise details because an early settlement fee can vary depending on the company.
Not all car finance lenders offer a finance settlement figure. If you believe you might want an early repayment option, ensure it is something the lender provides.
What are the Benefits of a Car Finance Early Settlement?
The advantage of settling car finance early is that, typically, you’ll pay less than if you continue with your agreement to its natural conclusion. The downside to any finance settlement is you’ll pay an early payment fee to the lender.
Typically, the further you are into your finance agreement, the lower the settlement figure and the easier to clear the finance.
What are the options other than paying a Final Settlement Figure?