How Do I Repay My Car Finance Loan Early?

What if you stumble upon some good luck and find that you have a significant amount of money to spare? What would you do with it? A practical person would probably use it to repay their outstanding loans and get out of debt fast. If you have extra cash, maybe you'd want to repay your lenders, too. But can you pay off your car finance early? Here's what you need to know about what happens when you pay off a car loan early. 

Should I pay off my car loan early?

If paying a car loan early is allowed, the real question is should you pay your car loan early? Well, the answer is tricky because there are a few factors to consider first. For example, how much will paying off car finance early cost you?

There are many reasons why you might want to pay off your car finance early. Depending on your situation, there can be different ways to go about it. So before we dive deeper into how to pay off a car loan early, let’s consider a few important points to think about, like whether paying off your car finance loan early is the best move for you. 

What to consider when paying off a car loan early?

In many cases, you’ll need a big amount of money so you can pay everything off. Will you still have enough savings to cover those unforeseen emergencies? The first steps to take are to find out the outstanding balance or the amount you would need to pay the lender as a settlement and whether you can afford to pay it. 

The next thing to consider would be how much money you’ll be able to save in interest by paying off car finance early in the UK. This depends on the car finance interest rate that the lender offered you when you took a loan. You’ll then be able to compare what you'll save in interest payments with what the lender wants by way of settlement. In other words, what is the settlement amount you’ll need to pay to the car finance company so you can finish the contract?

How do I end a PCP agreement early?

When you take out a personal contract purchase or PCP, you have two ways to end the contract. The first one is through what’s called “voluntary termination”, and the other is by paying the lender early. 

What is PCP voluntary termination?

Voluntary termination is for people who realise they can no longer keep up with the monthly payments and need to get out of a financing agreement fast.  To do this, they have to return the vehicle in order to stop making monthly repayments. Keep in mind that you’ll only be able to do this if you have already paid off half of the car’s overall cost, including interest and fees. 

How do I pay the PCP settlement figure?

The second option is paying off the PCP early if you have the funds to do so. All you have to do is talk to the car finance company so you can ask what the settlement figure is so you pay it and terminate the PCP agreement.

The settlement figure includes the amount you still owe the lender, along with a fee that compensates the interest that you would have paid the lender if the loan went through the agreed loan term. And since this is a PCP agreement, you need to be ready to pay for the final "balloon" payment, which will inevitably be larger. 

Once you’ve paid off everything, you’ll be the car’s owner at last. You’ll be free to keep the car or sell it if you feel it doesn’t fit your needs anymore and purchase a new and better car. 

How to pay off a hire purchase agreement early?

Paying for Hire Purchase or HP is a lot similar to the above process for a PCP. You may also end the contract through voluntary termination if you’ve already paid half of the car’s overall cost or you can pay off the remaining balance. 

What’s different here is that since it’s an HP agreement, you don’t have to make a balloon payment. That’s why the monthly repayment amount is higher compared to PCP. Another thing is that with HP, the loan repayment amount is higher than PCP. Therefore, returning the vehicle early will allow you to save more when it comes to interest. 

Again, if you have money to spend to pay off your HP early, once you make the payment, you’ll be the owner of the vehicle. The settlement amount is the outstanding loan amount plus a penalty interest fee, which is usually equivalent to 30 days of interest. Typically, your quote will be valid for 28 days.

When you pay off HP early, you’ll be the owner of the car. You’re free to keep it or sell it, depending on your needs, financial situation, and goals. 


So can car finance be paid off early? The answer is yes; definitely, it is possible to end your car finance early. You might be doing this for different reasons. Maybe you simply want to pay the remaining balance of your loan, or maybe your financial situation has changed and can’t afford any more repayments. It’s all a question of making the right decision according to your situation. 😊

Got questions about car finance? Feel free to get in touch and ask our friendly team!