Can you pay off car finance early?

You may want to pay off car finance early because you’ve suddenly come into money and want to own the car outright. Or you may need to free up some cash. Whatever the reason, you can pay off your car finance early. However, whether you should depends on your particular financial circumstances.

5 min read
Couple buying a car

Can you pay Hire Purchase (HP) finance off early?  

Hire Purchase (HP) finance is where you pay off your car in monthly instalments. You become the full, legal owner of it at the end of the repayment period.  

Like with most other types of credit, the provider has to let you end the contract early. It’s a legal requirement under the 1974 Consumer Credit Act. There are two ways that you can do this, as long as you’ve already repaid more than half the cost; return the car early or purchase it for a fee. 

 Remember: 

  • you’ll need to keep the car in great condition in order to return it
  • if you haven’t paid more than half the cost, you’ll need to make up the difference
  • you also won’t receive a refund if you hand the car back
  • there are different ways that you can pay off car finance early – look into them carefully

Can you settle Personal Contract Purchase (PCP) early?  

Personal Contract Hire (PCP) or a ‘personal contract plan’ is where you take out a loan that helps you buy a car. You’ll have a lump sum to pay off at the end before you legally own the car.  

Again, the lender has to let you end the contract early. However, it can be challenging and expensive to do so. You can either: 

  1. pay back at least half the cost of the car and return it – if the car is worth less than what you owe, you won’t have to pay the difference
  2. ask the lender for a final settlement fee – once you’ve paid this off, the car is yours  

If you return the car, you won’t get a refund on what you’ve paid. The car also needs to be in pristine condition.

The final settlement option includes all of the interest and early repayment fees. You’ll also have to pay a balloon payment – the amount the lender thinks your car will be worth at the end of your deal. This sum will have been agreed on at the beginning of your contract, so it will be listed on your credit agreement. 

Can you end Personal Contract Hire (PCH) early?  

Personal Contract Hire (PCH) is where you pay monthly to lease the car for a set period of time. As with the other types of car finance, you can end this agreement early.  

However, you may have to pay the full leasing cost off in full if you return your car early. So, think carefully before doing this. 

Check your credit agreement or contact your provider to see what the early repayment charges are. 

If you’re worried about managing the repayments, speak to your lender about extending or freezing the agreement. You can also seek financial advice from your local Citizen’s Advice. 

Is it worth paying off car finance early?  

Paying off your car finance early may sound like a great idea, but there are a variety of things that can impact you financially, which you should consider before making your final decision: 

  • negative equity – if the amount of money you’d get for selling your car is less than how much you’d have to pay as an early settlement fee, you should be wary about paying off your car finance early. 
  • early repayment fees – most lenders charge early repayment fees and if these are pretty hefty, it might be worth carrying on with your repayment plan. 
  • financial gain – if you’ll get more by selling your car than you’d spend to pay it off early, you could gain financially. 
  • total cost – you may pay more in total if you carry on with your plan than if you settle early; work out the total cost of each option. 
  • admin charges – if you pay off the car early, your provider might charge you for the paperwork they have to do.
  • the condition of the car – it needs to be in excellent condition when you hand it back, otherwise, you may have to pay an expensive fee.
  • interest – you could pay less in interest by paying the car off early. 

Does paying off a car loan early hurt your credit score?  

Voluntary termination of your car loan will appear on your credit report, this means that it can be seen by future lenders. The good news is, it will make little to no difference to your credit, making it a much better option than missing repayments, which would have a significant negative impact on your score. 

How can I pay off finance early? 

There are different ways that you can pay off car finance early. Look into them carefully in order to see which one is right for you: 

Make regular overpayments  

Many deals allow you to make a certain number of overpayments within a year. You can make regular overpayments to help end your car finance early if you have a steady, increased income. 

Refinance your car loan  

It may be possible for you to refinance your loan if you have a good credit history. If your credit score has recently increased, you may be able to access better interest rates on a shorter loan, decreasing the amount you have to pay overall. But if your credit score has dipped, you may struggle to get a better deal. 

Use savings  

It’s a good idea to get out of debt as soon as you reasonably can. Any savings you have may be best placed paying off your car finance. This way, you don’t have the worry of debt hanging over you. 

Make an extra-large payment 

If you’ve recently come into some money, you may want to make one lump overpayment. This means you’ll only have to pay the overpayment fees once. Check out the fees and charges section of your agreement to see if it is worth doing so. 

If you’re looking to buy a car on finance, find out how to go about getting accepted. 

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*Representative example: Borrowing £6,500 over 5 years with a representative APR of 20.7%, an annual interest rate of 20.7% (Fixed) and a deposit of £0.00, the amount payable would be £168.48 per month, with a total cost of credit of £3,608.67 and a total amount payable of £10,108.67. Rates may differ as they are dependent on individual circumstances. Subject to status. We're a credit broker, not a lender.