Can you settle a car finance agreement early?
Updated: Monday, 15 May 2023
You might be wondering if you can settle your car finance agreement early. Lenders understand that your financial and personal circumstances change over time, and this is a common request they receive.
No matter which type of car finance you have, you can legally end your agreement early. However, the requirements for early settlement will vary depending on your contract, and there may be a fee for doing so.
In this guide, we’ll look at why people end their car finance early. We’ll also look at how to settle the different types of agreements if you decide it’s worth settling your finance agreement early, and the things you should consider.
If you are a Moneybarn customer and are considering settling your agreement early, contact us to discuss your options.
Why settle a car finance agreement early?
You might want to settle your car finance early for many reasons. You may be struggling to keep up with the monthly repayments, you might not need the car anymore, or you may have received a lump sum of money that could pay off your remaining balance. Whatever the reason, you can usually end your car finance deal early. The requirements for early settlement vary depending on the type of agreement you have.
Let’s look at some of the most common reasons customers decide to end their agreements early.
You acquired a lump sum of money
You may have acquired enough money to pay off the remainder of your car finance balance. If this is the case, you can contact your lender to make what is known as an ‘early settlement’.
You no longer need the car
Your circumstances may have changed, and you no longer need the car. Perhaps your partner has a car you can use, or you’ve decided to start cycling to work. There are many reasons why you might not want a car anymore.
You can't make the monthly repayments
You might decide to settle early if you’re struggling to keep up with your monthly repayments. This is often the case when people’s financial situations have changed.
If you’re a Moneybarn customer struggling with your monthly repayments, get in contact with our team today. Although we cannot offer financial advice, we can point you to some not-for-profit organisations that could help. StepChange offers a freephone debt advice service, and MoneyHelper has plenty of free money tools and information to help organise your finances.
You want a newer car
Your current car may no longer suit your needs. Perhaps you’ve recently gotten married or have had a child. If you’ve spotted a new car that’s more suitable, you can settle your deal early and upgrade.
What are your rights if you settle your car finance early?
The Consumer Credit Act provides you certain rights regarding ending your car finance agreement early. However, these rights differ depending on which car finance deal you have. The act also has stipulations designed to protect the car finance company in the event of an early settlement.
It’s important that you’re aware of the specific terms and requirements of your agreement. If in doubt, check your contract or ask your lender.
Let’s talk about the most common types of finance, and how early settlement works with each of them.
Can you settle a Conditional Sale (CS) agreement early?
What is a Conditional Sale agreement?
At Moneybarn, we use a Conditional Sale agreement for car finance. This means you’ll have full use of the vehicle for the duration of the term, and the vehicle will be registered in your name. However, you won’t be the legal owner of the car until all the repayments have been made.
How to settle a Conditional Sale agreement early
You can pay your agreement in full or make additional payments on your car finance balance at any point of the agreement. Paying your agreement off in full before the agreed end date is known as an early settlement.
Your early settlement figure is the amount you need to pay off to end your agreement and will depend on lots of factors such as how much you’ve already paid back. Get in touch with your lender and they can give this to you.
If you want to end your contract early without making an early settlement, you can do, it through something known as voluntary termination. CS agreements work similarly to other finance types in that to voluntarily terminate your contract, you must pay 50% of the total amount payable.
So, if you’ve paid less than 50% of this amount, you’ll have to meet this threshold before you can terminate the agreement. As part of voluntary termination, you will also have to return the vehicle to the finance company and repay any arrears or charges if those are applicable as per your contract.
If you are a Moneybarn customer and are considering settling your agreement early, contact us to discuss your options.
Is it worth ending a Conditional Sale agreement early?
If your financial circumstances have changed, you might consider ending your CS agreement early. However, if you haven’t yet paid 50% or more of the total amount payable, then you could be faced with a lump sum payment to end the agreement.
If you’ve received a lump sum of money and are in a financial position to make an early settlement, this may save you money in the long run as you’ll be spending less on interest.
Can you settle a Personal Contract Purchase (PCP) agreement early?
What is a Personal Contract Purchase (PCP) agreement?
The most common form of car finance is Personal Contract Purchase agreements. If you take out a PCP finance deal, a deposit will be payable to the finance provider. You’ll then need to pay the agreed amount each month over the course of the agreement. Most PCP agreement terms last 3 to 4 years.
How to settle a PCP agreement early
If you’re looking to pay off your PCP agreement and keep the car, contact your lender and ask for the early settlement figure, which will include the balloon payment. After you pay this, you will be the legal owner of the car.
If you want to return the car under voluntary termination, you must have paid 50% of the total amount payable. If you haven’t reached the 50% mark with your payments yet, you’ll need to pay the amount to reach 50%, and hand back the car to the finance company.
Is it worth ending a PCP agreement early?
If you’re considering settling your PCP deal early, there are a few things to consider.
Your car may have positive equity. Positive equity is when the value of your car is higher than the remaining payments you must make.
If your car has positive equity, you could ask your finance company to provide you with an early settlement figure. This figure is how much you’ll have to pay to become the owner of the vehicle. Once you have paid this and become the owner of the vehicle, you can sell the car and use the difference between the sale price and what you paid to early settle, and use that money as a deposit for your next car.
Depending on the circumstances you might have negative equity. This is where the value of the car is less than the early settlement figure. This would mean, that when you come to sell the car, you won’t have extra funds to put towards a deposit for a new vehicle. You would also have to pay the difference out of your own pocket.
Say your early settlement figure is £10,000, but you sell the car for £8,000, you will have to find £2,000 to make up the difference. You will also need to find the money for a new vehicle.
One of the downsides to ending your deal early is that there may be an extra fee for early settlement. However, this varies between lenders, so check your contract to see if any fees are applicable.
Also, if you’ve gone over the agreed mileage limit, or there is wear and tear or damage to the car, you may incur extra fees.
Can you settle a Hire Purchase (HP) agreement early?
What is a Hire Purchase (HP) agreement?
A Hire Purchase agreement is where the finance company pays the dealer for you, and you make monthly repayments over an agreed period of time. If you want to fully own the car then you will need to pay the ‘option to purchase’ fee.
How to settle an HP agreement early
If you wish to end your agreement using voluntary termination, you’ll need to have paid 50% of the total amount payable, as set out in your contract.
If you wish to settle your HP agreement early to own the vehicle, you can make an early settlement at any point. Some lenders will add on early settlement fees, so make sure to check your contract.
Is it worth ending an HP agreement early?
You might consider early settlement if your financial situation has changed, and you are able to fully pay off the agreement. Doing this would save you money in the long term because you won’t pay as much in interest.
Can you settle a Personal Contract Hire (PCH) agreement early?
What is a Personal Contract Hire agreement?
A PCH agreement is where you lease the vehicle for the duration of your contract. This is also known as car leasing. Once the agreement ends, you must return the vehicle.
How to settle a PCH agreement early
Not all car leasing companies allow you to end your lease agreement early. Some do, but they might charge an early termination fee or ask you to pay any outstanding finance on the car. Check your contract, or ask your lender if you’re unsure.
Is it worth ending a PCH agreement early?
This depends on the terms of your contract. Many PCH contracts require you to pay the full remaining amount of your contract if you want to end the deal early. Each lender will differ, so make sure to check your contract.
What are the consequences of ending your car finance early?
If you choose to end your agreement by voluntary termination, it will likely show up on your credit report. It shouldn’t affect your credit score so long as you have paid all of your monthly payments on time up to the point you hand the vehicle back.
If you have stopped making payments, then this would affect your credit rating. So, exploring voluntary termination options may be more suitable than simply stopping your payments. If you are experiencing financial difficulty, you should contact your lender and they can discuss the support available to you.
You might be wondering if you can settle your car finance agreement early. Lenders understand that your financial and personal circumstances change over time, and this is a common request they receive.
No matter which type of car finance you have, you can legally end your agreement early. However, the requirements for early settlement will vary depending on your contract, and there may be a fee for doing so.
In this guide, we’ll look at why people end their car finance early. We’ll also look at how to settle the different types of agreements if you decide it’s worth settling your finance agreement early, and the things you should consider.
If you are a Moneybarn customer and are considering settling your agreement early, contact us to discuss your options.
Why settle a car finance agreement early?
You might want to settle your car finance early for many reasons. You may be struggling to keep up with the monthly repayments, you might not need the car anymore, or you may have received a lump sum of money that could pay off your remaining balance. Whatever the reason, you can usually end your car finance deal early. The requirements for early settlement vary depending on the type of agreement you have.
Let’s look at some of the most common reasons customers decide to end their agreements early.
You acquired a lump sum of money
You may have acquired enough money to pay off the remainder of your car finance balance. If this is the case, you can contact your lender to make what is known as an ‘early settlement’.
You no longer need the car
Your circumstances may have changed, and you no longer need the car. Perhaps your partner has a car you can use, or you’ve decided to start cycling to work. There are many reasons why you might not want a car anymore.
You can't make the monthly repayments
You might decide to settle early if you’re struggling to keep up with your monthly repayments. This is often the case when people’s financial situations have changed.
If you’re a Moneybarn customer struggling with your monthly repayments, get in contact with our team today. Although we cannot offer financial advice, we can point you to some not-for-profit organisations that could help. StepChange offers a freephone debt advice service, and MoneyHelper has plenty of free money tools and information to help organise your finances.
You want a newer car
Your current car may no longer suit your needs. Perhaps you’ve recently gotten married or have had a child. If you’ve spotted a new car that’s more suitable, you can settle your deal early and upgrade.
What are your rights if you settle your car finance early?
The Consumer Credit Act provides you certain rights regarding ending your car finance agreement early. However, these rights differ depending on which car finance deal you have. The act also has stipulations designed to protect the car finance company in the event of an early settlement.
It’s important that you’re aware of the specific terms and requirements of your agreement. If in doubt, check your contract or ask your lender.
Let’s talk about the most common types of finance, and how early settlement works with each of them.
Can you settle a Conditional Sale (CS) agreement early?
What is a Conditional Sale agreement?
At Moneybarn, we use a Conditional Sale agreement for car finance. This means you’ll have full use of the vehicle for the duration of the term, and the vehicle will be registered in your name. However, you won’t be the legal owner of the car until all the repayments have been made.
How to settle a Conditional Sale agreement early
You can pay your agreement in full or make additional payments on your car finance balance at any point of the agreement. Paying your agreement off in full before the agreed end date is known as an early settlement.
Your early settlement figure is the amount you need to pay off to end your agreement and will depend on lots of factors such as how much you’ve already paid back. Get in touch with your lender and they can give this to you.
If you want to end your contract early without making an early settlement, you can do, it through something known as voluntary termination. CS agreements work similarly to other finance types in that to voluntarily terminate your contract, you must pay 50% of the total amount payable.
So, if you’ve paid less than 50% of this amount, you’ll have to meet this threshold before you can terminate the agreement. As part of voluntary termination, you will also have to return the vehicle to the finance company and repay any arrears or charges if those are applicable as per your contract.
If you are a Moneybarn customer and are considering settling your agreement early, contact us to discuss your options.
Is it worth ending a Conditional Sale agreement early?
If your financial circumstances have changed, you might consider ending your CS agreement early. However, if you haven’t yet paid 50% or more of the total amount payable, then you could be faced with a lump sum payment to end the agreement.
If you’ve received a lump sum of money and are in a financial position to make an early settlement, this may save you money in the long run as you’ll be spending less on interest.
Can you settle a Personal Contract Purchase (PCP) agreement early?
What is a Personal Contract Purchase (PCP) agreement?
The most common form of car finance is Personal Contract Purchase agreements. If you take out a PCP finance deal, a deposit will be payable to the finance provider. You’ll then need to pay the agreed amount each month over the course of the agreement. Most PCP agreement terms last 3 to 4 years.
How to settle a PCP agreement early
If you’re looking to pay off your PCP agreement and keep the car, contact your lender and ask for the early settlement figure, which will include the balloon payment. After you pay this, you will be the legal owner of the car.
If you want to return the car under voluntary termination, you must have paid 50% of the total amount payable. If you haven’t reached the 50% mark with your payments yet, you’ll need to pay the amount to reach 50%, and hand back the car to the finance company.
Is it worth ending a PCP agreement early?
If you’re considering settling your PCP deal early, there are a few things to consider.
Your car may have positive equity. Positive equity is when the value of your car is higher than the remaining payments you must make.
If your car has positive equity, you could ask your finance company to provide you with an early settlement figure. This figure is how much you’ll have to pay to become the owner of the vehicle. Once you have paid this and become the owner of the vehicle, you can sell the car and use the difference between the sale price and what you paid to early settle, and use that money as a deposit for your next car.
Depending on the circumstances you might have negative equity. This is where the value of the car is less than the early settlement figure. This would mean, that when you come to sell the car, you won’t have extra funds to put towards a deposit for a new vehicle. You would also have to pay the difference out of your own pocket.
Say your early settlement figure is £10,000, but you sell the car for £8,000, you will have to find £2,000 to make up the difference. You will also need to find the money for a new vehicle.
One of the downsides to ending your deal early is that there may be an extra fee for early settlement. However, this varies between lenders, so check your contract to see if any fees are applicable.
Also, if you’ve gone over the agreed mileage limit, or there is wear and tear or damage to the car, you may incur extra fees.
Can you settle a Hire Purchase (HP) agreement early?
What is a Hire Purchase (HP) agreement?
A Hire Purchase agreement is where the finance company pays the dealer for you, and you make monthly repayments over an agreed period of time. If you want to fully own the car then you will need to pay the ‘option to purchase’ fee.
How to settle an HP agreement early
If you wish to end your agreement using voluntary termination, you’ll need to have paid 50% of the total amount payable, as set out in your contract.
If you wish to settle your HP agreement early to own the vehicle, you can make an early settlement at any point. Some lenders will add on early settlement fees, so make sure to check your contract.
Is it worth ending an HP agreement early?
You might consider early settlement if your financial situation has changed, and you are able to fully pay off the agreement. Doing this would save you money in the long term because you won’t pay as much in interest.
Can you settle a Personal Contract Hire (PCH) agreement early?
What is a Personal Contract Hire agreement?
A PCH agreement is where you lease the vehicle for the duration of your contract. This is also known as car leasing. Once the agreement ends, you must return the vehicle.
How to settle a PCH agreement early
Not all car leasing companies allow you to end your lease agreement early. Some do, but they might charge an early termination fee or ask you to pay any outstanding finance on the car. Check your contract, or ask your lender if you’re unsure.
Is it worth ending a PCH agreement early?
This depends on the terms of your contract. Many PCH contracts require you to pay the full remaining amount of your contract if you want to end the deal early. Each lender will differ, so make sure to check your contract.
What are the consequences of ending your car finance early?
If you choose to end your agreement by voluntary termination, it will likely show up on your credit report. It shouldn’t affect your credit score so long as you have paid all of your monthly payments on time up to the point you hand the vehicle back.
If you have stopped making payments, then this would affect your credit rating. So, exploring voluntary termination options may be more suitable than simply stopping your payments. If you are experiencing financial difficulty, you should contact your lender and they can discuss the support available to you.
For a better road ahead
Moneybarn is a member of the Finance and Leasing Association, the official trade organisation of the motor finance industry. The FLA promotes best practice in the motor finance industry for lending and leasing to consumers and businesses.
Moneybarn is the trading style of Moneybarn No. 1 Limited, a company registered in England and Wales with company number 04496573, and Moneybarn Limited, a company registered in England and Wales with company number 02766324. The registered address for these companies is: Athena House, Bedford Road, Petersfield, Hampshire, GU32 3LJ.
Moneybarn’s VAT registration number is 180 5559 52.
Moneybarn Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702781)
Moneybarn No. 1 Limited is authorised and regulated by the Financial Conduct Authority (Financial Services reference No. 702780)
