Can You Settle a Car Finance Agreement Early?

You might be wondering if you can settle your car finance agreement early. Lenders understand that your circumstances change over time, and this is a common request they receive.

The options for doing this depend on your agreement type.

In this guide, we’ll look at why people end their car finance early, how it works for the most popular types of car finance, and some things you should consider.

If you’re a Moneybarn customer and are considering settling your agreement early, contact us to discuss your options over the phone.

In this guide

Why settle a car finance agreement early?
What are your rights if you settle your car finance early?
Can you settle Conditional Sale (CS) early?
Can you settle Personal Contract Purchase (PCP) early?
Can you settle Hire Purchase (HP) early?
Can you settle Personal Contract Hire (PCH) early?
What are the consequences of ending your car finance early?

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 payments, you might not need the car anymore, or you may have received a lump sum of money that could pay off your remaining balance.

The requirements for ending your agreement early depend on the type of finance you have. But first, let’s look at the most common reasons customers decide to end their agreements early.

You acquired a lump sum of money

You might have been paid a bonus, received an inheritance, or saved enough and want to pay off your car finance balance. If this is the case, you can request an Early Settlement Figure. Once you’ve paid this figure in full, the finance will be cleared.

For more information, check out our guide that explains how we calculate your Early Settlement Figure. Please note that this guide explores our process, and we can’t speak for other lenders.

You no longer need or want the car

Your circumstances may have changed, and you no longer need the car. Perhaps you’ve decided to use your partner’s car or you’ve decided to start cycling or taking the bus to work. There are many reasons why you might want to return or sell a financed car, but you’ll need to end your agreement to do that.

You can no longer afford the payments

If your financial situation has changed and you can’t afford the monthly payments, you might need to end your agreement early.

If you’re a Moneybarn customer struggling with your monthly payments, please get in contact with our friendly, helpful team today so we can discuss the ways we can best support you.

Although we cannot offer financial advice, we can also point you to some not-for-profit organisations that could help. StepChange offers a freephone debt advice service, and MoneyHelper has free money tools and information to help organise your finances.

You want to upgrade to a newer car

If your circumstances have changed, you might need a different or newer car to suit your needs. Perhaps you’ve recently got married or have had a child. By settling your agreement early, you can upgrade to something more suitable for your circumstances.

What are your rights if you settle your car finance early?

The Consumer Credit Act sets out your legal rights for ending a car finance agreement early. Your options for ending an agreement depend on the type of finance you have, so if you’re unsure, check your contract or speak with your lender.

Section 99 of the Act gives you the legal right to voluntarily terminate your HP, CS, or PCP agreement at any time.

This process involves returning the vehicle and may require a lump sum payment depending on how much of your finance balance has been paid off. Section 100 of the Act explains that you must have paid at least half of the total amount payable if you haven’t already, plus any outstanding payments or additional charges if applicable.

Another way to end some types of finance is called early settlement. This is where you request an Early Settlement Figure (ESF) and pay it off, which ends your finance agreement. This lets you keep the car so you can sell or trade it in if you wish.

Let’s talk about the most common types of finance, and how early settlement works with each of them:

Conditional Sale (CS)
Personal Contract Purchase (PCP)
Hire Purchase (HP)
Personal Contract Hire (PCH)

Can you settle a Conditional Sale (CS) agreement early?

At Moneybarn, we use a Conditional Sale agreement for car finance. This means the vehicle will be registered in your name, but you won’t be its legal owner until you’ve made your final payment.

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 must pay off to end your agreement. Your ESF will depend on several factors including how much you’ve already paid back. Once you’ve paid this off, the car finance company will transfer legal ownership of the car to you.

If you want to end your contract early without making an early settlement, and you’re happy to return the car, another option is to use a process known as voluntary termination.

You have the right to voluntarily terminate your agreement at any point. You’ll return the car, and if you haven’t paid 50% of the total amount payable, you will have to pay up to that point plus any outstanding payments and additional charges (depending on the terms of your agreement).

If you’ve already paid 50% of the total amount payable then you will just need to return the car to your lender. There may be additional charges applied, depending on your agreement and the condition the car is returned in.

If you’re a Moneybarn customer and want to end your agreement, please contact us. Our friendly team can discuss your circumstances and walk you through how these processes work and what you need to do. You can also request and view your Early Settlement Figure in your My Moneybarn account.

Is it worth ending a Conditional Sale agreement early?

If you’re in the position to make an early settlement, this would save you money in the long run as you’ll be spending less on interest. However, it can be difficult to find the money to pay off the Early Settlement Figure in one go. Some lenders may allow you to make additional or early payments which can help shorten the length of your agreement.

Can you settle a Personal Contract Purchase (PCP) agreement early?

Personal Contract Purchase is the most common type of car finance. PCP gives you flexibility at the end of the agreement, as you can choose to pay the ‘balloon payment’ to keep the car, trade-in the car for a newer one, or return it and end the agreement.

How to settle a PCP agreement early

There are two ways you can end PCP car finance early:

Voluntary termination: this is where you return the car to the lender to end your agreement. You can voluntarily terminate your agreement at any time, but you’ll always need to return the car, and if you haven’t paid 50% of the total agreement value, you’ll need to pay the remaining value up to 50% plus any additional charges.
Early settlement: you request an Early Settlement Figure from your lender and pay this off in full. This will usually include the balloon payment. Once the ESF is paid off, you will legally own the car and your PCP deal will end.

Is it worth ending a PCP agreement early?

One of the challenges if you want to part-exchange your PCP car is whether you are in positive or negative equity.

Depending on the circumstances, you might have negative equity. This is when your car is worth 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.

For example, let’s say your Early Settlement Figure is £10,000, but your car is worth £8,000. There is £2,000 worth of negative equity which you would have to make up. If you’re in this situation, it can be quite tricky to settle your PCP agreement early.

Another downside of ending PCP early is that there may be extra fees to pay. These could be in the form of early settlement fees or charges if you’ve gone over your mileage limit. Every lender is different, so check your contract to see if any fees are applicable before proceeding.

Can you settle a Hire Purchase (HP) agreement early?

A Hire Purchase agreement is where the finance company pays the dealer for you, and you make monthly payments over an agreed period of time. To fully own the car, you will then pay the ‘option to purchase’ fee.

How to settle an HP agreement early

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.

If you’re happy to return the car, another option is voluntary termination. You can do this at any stage, however you will always have to return your car as part of this process.

When voluntarily terminating your agreement, if you haven’t paid at least 50% of the total amount payable, you’ll need to pay the remaining value up to 50% to voluntarily terminate your agreement. Additional charges may apply, depending on the terms of your agreement.

If you’ve already paid more than 50% of the total amount payable, there may be nothing to pay after you’ve returned your car. It’s best to speak to your lender and they can help you understand if this is right for your circumstances.

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.

Voluntary termination might be more suitable if your financial circumstances have changed, and you aren’t able to afford the car on finance anymore. This might not be your only option, though. Speak to your lender and they can discuss what support is available.

Can you settle a Personal Contract Hire (PCH) agreement early?

A PCH agreement is where you lease a vehicle for the duration of your contract. Once the agreement ends, you must return the vehicle. It allows you to get a newer car, or change cars more frequently, but there is never the option of owning it.

How to settle a PCH agreement early

You may be able to end your PCH agreement early, but this depends on your leasing company, so it’s best to speak to them to understand your options and the fees involved.

Is it worth ending a PCH agreement early?

This depends on the terms of your contract. Many PCH agreements require you to pay the full remaining amount plus a fee 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 opt for early settlement, there shouldn’t be any impact on your credit score, as you are fully paying off your agreement.

If you’re experiencing financial difficulties, and you stop payments, then this will have a negative impact on your credit rating. Find out more about what happens if you choose to stop paying your car finance in our guide.

If you can’t afford to make your payments, then you should contact your lender to see what support they can offer and to discuss the best way to end your agreement.