You can pay off a car finance agreement early at any time, and you’ll usually pay less interest than if you’d kept going. This guide explains how to get a settlement figure, how much you could save, and what to do once you’ve paid.
In short
Yes, you have a legal right to settle a regulated finance agreement early. Ask your lender for a settlement figure, which must be provided within 12 working days of a written request, then pay it. You’ll normally get a rebate of future interest, so the figure is usually less than the total of your remaining payments.
Can you pay off car finance early?
Yes. Under section 94 of the Consumer Credit Act 1974, you can repay a regulated agreement in full, or in part, at any time. This applies to HP, PCP, balloon HP and personal loans, whatever the vehicle.
Agreements with limited companies, and some business agreements, aren’t regulated, so their early settlement terms are set by the contract instead.
How to get a settlement figure
A settlement figure is what you’d pay to clear the agreement on a particular date. Most lenders show it in their app or online account, or you can phone or write.
- If you ask in writing, the lender must send a settlement statement within 12 working days.
- The figure is usually valid for a set period, often 28 days. After that, ask for an updated one.
- The figure assumes settlement a short time after your request, so it can include a few weeks of interest.
Will you save money by settling early?
Usually, yes. The law requires lenders to give you a rebate of interest for the time you won’t be borrowing. The earlier you settle, the more you save, because more of your remaining payments would have been interest.
In limited cases, the lender can charge a small amount for early repayment:
- only if the amount you repay early is more than £8,000 in a 12-month period
- capped at 1% of the amount repaid if more than a year is left, or 0.5% if less
Many car finance settlements fall below the £8,000 threshold, so no charge applies. Your settlement statement will show any charge.
How to pay off your finance early step by step
- Ask for a settlement figure through your lender’s app, website or phone line, or in writing.
- Check the figure and its expiry date.
- Pay by the method the lender asks for, usually bank transfer or debit card.
- Get written confirmation that the agreement is settled.
- Check the finance marker is removed. The lender should tell finance registers such as HPI that the vehicle is no longer on finance.
Overpaying vs full settlement
You can also make partial early repayments. Your lender will either reduce your monthly payments or shorten the term. Ask which before you pay, as shortening the term usually saves more interest.
With PCP or balloon HP, an overpayment may reduce the final payment instead. Check how your lender applies it.
After you settle: paperwork and ownership
- HP and PCP: once the agreement is settled (and any option to purchase fee paid), the vehicle is yours.
- Keep the settlement letter. You may need it if you sell the vehicle, as buyers often run a finance check.
- Update your insurer if the lender was listed as the legal owner.
Early settlement FAQs
Does settling early affect my credit file?
Not negatively. The account shows as settled, which is a neutral or positive mark. Your credit score may change slightly when an account closes, but this is normal.
Are there early repayment charges on car finance?
Only in limited cases, if you repay more than £8,000 early in a year, and capped at 1% (or 0.5% if under a year remains). Many settlements don’t have a charge.
How long does a settlement figure last?
It depends on the lender, but often 28 days. If you pay after it expires, ask for an updated figure.
Can I settle part of my finance early?
Yes. You can make partial early repayments at any time on a regulated agreement. Ask your lender whether it will reduce your payments or your term.
Is it better to settle early or voluntarily terminate?
It depends on whether you want to keep the vehicle and what it’s worth. If you want to keep it or it’s worth more than you owe, settling is usually better. If you can’t afford it and have paid half, voluntary termination may suit you better.