If you entered into a finance agreement in order to get a car, you might be wondering how to settle car finance. For the most part, this is simple; you pay back the amount you borrowed in full, plus any additional fees specified in your contract.
Certain forms of car finance will require additional fees, while for others as soon as you make your last payment, the debt is settled. If you want to settle earlier than your final payment, there may also be charges to face.
Settling your car finance early
You can pay off your repayment schedule early at a time of your choosing with all kinds of car finance. With some forms of finance (such as conditional sales, personal loans and hire purchase agreements), there may be an early repayment charge, but you should save on interest because you’re paying the loan off sooner.
With personal contract purchase (PCP) car finance, you do have the option to settle early. However, due to the fact that you’ve been paying only a small amount of the total finance borrowed, your figure for settlement will be much higher than the other options for finance.
Settling a finance agreement without keeping the vehicle
If you want to settle your finance agreement without keeping the vehicle, you must return the car in a condition that makes it possible to resell. If the car has damage beyond acceptable wear and tear, you’ll be asked to pay for it when you settle up.
Settling HP agreements
You can settle car finance for an HP agreement by paying the remaining amount left on the total amount borrowed.
If you want to keep the vehicle when you settle your car finance, you must pay an “option to purchase” fee, normally around £100 to £200.
Settling a PCP
You can settle car finance for a PCP by repaying the outstanding amount borrowed and returning your vehicle.
If you wish to own the vehicle, you must also pay a “balloon payment”. This figure includes what the lender estimates the car to be worth at the time your agreement comes to an end.
Charges for PCPs
If you’re returning the vehicle on a PCP agreement, you’ll be charged for any damage to the vehicle beyond acceptable wear and tear, you’ll be charged if you went above the agreed mileage stated in your contract. This is typically charged at between seven and 10p per mile. This might not sound like much but it can add up - if you overstep by 1,000 miles, for example, you could end up paying £100 in charges.
Settling a personal or fixed car loan
When settling a personal or fixed car loan, once you pay the outstanding amount left on your balance, the car is yours and your debt is settled.
Settling a conditional sale
Settling a conditional sale car finance agreement works in the same way as a personal loan. Once you’ve settled any outstanding amount, your car finance deal is finished and the car is yours.
Support and advice on car finance
At Car.co.uk, we pride ourselves on providing an invaluable resource where car buyers can cross reference and compare many different forms of car finance without having to use multiple sites. We also offer both advice and support when you’re looking into car finance as a possible option for buying a vehicle.
If you would like to settle up your car finance agreement and have any questions or concerns, you can take a look around our website for further information. You can also contact us for further guidance and advice.