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How To Calculate Car Finance Early Settlement Amount

When you think of it, taking out a car finance loan can actually be quite scary. You’re basically committing to the fact that you’ll be able to afford to pay a set amount of money every month until the end of your loan. But what happens if your personal circumstances change? Can you end the contract early? 😱

Good news: yes. 👍 That’s where a car finance settlement amount comes in. Even better news: we’re going to go over how you can calculate your car finance early settlement amount. Let’s dive right in. 

What Is a Car Finance Settlement Figure?

The term ‘settlement figure’ means the amount of money that you will need to pay if you want to pay off your loan in full, or finish a finance agreement early. Though it might seem like you just need to add up whatever is left from your monthly payments, it’s actually a little bit more complex than that. In fact, you’ll find that most car finance deals include an early settlement charge. 

Errr, okay, but why? Well, your lender or car finance provider gets paid through those monthly interest rates that they charge you. That means that when you’re settling your car loan agreement earlier than its official term, you’ll be paying less interest, so your lender will be losing money. That’s why most types of car finance agreements include early repayment charges. 

Why Would You Need a Car Finance Settlement Amount?

There are plenty of reasons why you might want to settle your car loan earlier than expected. And it is actually a pretty common thing to happen. Besides coming into an amount of money that you hadn’t anticipated, therefore looking to reduce your debt, it could also be because you don’t need your car anymore. Personal circumstances change, and payments can become no longer affordable, or growing families need bigger cars. 

How Much Are Early Repayment Fees? 

The penalty incurred for terminating your loan before its term is called an early termination fee. Its exact amount depends on several different factors and will vary quite a bit according to your finance provider. Some lenders will charge a 50% fee of all outstanding amounts for HP and PCP agreement termination. Others might go on a more case by case basis, taking into account mileage allowance and length of the loan. Different lenders have their own car finance settlement calculator which you can use to find out their repayment fees. 

Car Finance Settlement Amounts for Different Deals

Like all things car finance, you can only calculate your car finance agreement’s early settlement amount by considering your own personal circumstances. This amount will also depend on what type of agreement you took out, which is why we will now go over the different types of car finance deals and their settlement figures. 

Car Finance Settlement Figures on PCP Deals

When you want to end a PCP car finance agreement early, you have to pay a settlement figure. The settlement figure will include any fees that have yet to be paid, like the rest of the interest payments, and the remainder of your monthly payments plus some repayment charges. If you want to buy the car, don’t forget to consider the cost of the final payment, otherwise known as the “balloon payment”. 

Car Finance Settlement Figures on Hire Purchase Deals

Monthly payments on Hire Purchase deals are usually much higher than PCP agreements. Also, there’s no balloon payment at the end of an HP agreement because the deposit and monthly repayment amounts stand for the entire value of the car. That’s why settlement amounts on HP deals are usually a lot lower, especially if you’re terminating the agreement towards the end of your loan term. However, you’ll still have to pay early repayment fees. 

Car Finance Settlement Figures on Lease Deals

If you have taken out a lease agreement, which also goes by the name of Personal Contract Hire, then you might find it more difficult to get out of the deal before the loan term. You’ll have to find out whether or not you have an early termination clause, though it might also be worded differently in your contract. In some cases, your only option might be to pay off at least half of the remaining costs other than the loan itself, if you want to get out of the agreement. Your best bet is to make sure you know what you’re getting into before you sign for a car finance deal. If you’re not familiar with some of the terms of the contract, don’t hold back on asking your lender for clarifications. 

Car Finance Settlement Figure on a Personal Loan

When you take out a personal loan, your car will be entirely yours as soon as you use that money to purchase it. It won’t belong to your car finance provider. That’s why it’s generally easier to pay off a personal car loan early. However, your lender will still probably want early repayment charges because of the fact that they’ll be missing out on expected interest payments. 

This doesn’t necessarily mean that a personal loan is a better loan. Personal loans for car finance usually mean higher interest rates and overall greater APRs, which means you’re spending more in the long run. It’s up to you to decide whether it’s worth paying more every month to have the freedom of leaving the car finance agreement whenever you want. 

The Bottom Line

Hopefully, after reading this article, you now see that it is indeed possible to pay off your car loan earlier than its initial term. However, some car finance providers will make it more or less difficult for you to do so. Remember that by paying off a loan earlier, you’re making them miss out on some of their expected interest rate payments, so they’re bound to not let you off the hook so easily. It’s important though that you have a car finance deal that is tailored to your needs and that can evolve at the same time as you, throughout life and its ever-changing circumstances. 

That’s why here at Carmoola, you’ll be able to see your settlement figure in the app at any given time, so it’s all transparent and straightforward. You can plan and decide what’s best for you, without compromising on your finances or on your dream car. Download our app to get a made-to-measure finance deal today! 😊

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