What is a car finance settlement figure?

Have a car on finance and want to get out of your contract early? You'll need to pay the settlement figure. Here’s how it works

Matt Rigby
Jul 8, 2021

If you have a car on finance and your personal circumstances change, you might want to end the contract early. This is where a car finance settlement figure comes in.

In essence, it is the amount of money you need to pay to the lender in order to terminate that finance agreement before the official end of the contract.

On the surface, it might simply seem like a matter of adding up the remaining monthly payments on your finance contract, but the reality is a little more complicated. Most types of finance involve some form of early repayment charge.

This is because lenders include interest on loan agreements on a monthly basis, so if you settle a car finance agreement early you pay less interest - and the lender loses out. What’s more, if you have a Personal Contract Purchase (PCP) agreement, then you’ll also need to factor in the large optional final payment into your settlement figure.

Why you might need a car finance settlement figure

Aside from unexpectedly coming into money and wanting to pay off your car finance, or if you are looking to reduce your debt levels and want to hand the car back, there are several quite common reasons for wanting to switch.

Generally, if you want to get out of a car finance contract early, it will be because you don’t need the car anymore due to a change in personal circumstances, the monthly payments are no longer affordable or you simply want to change the car and finance or buy a different one.

Car finance settlement figures on PCP deals

If you have a PCP agreement that you want to end early and keep the car, you’ll need to pay the settlement figure. This will include any outstanding fees on the finance - such as expected interest yet to be accumulated - plus any other early repayment charges on top of the sum total of remaining monthly payments.

You’ll also have to factor in the cost of the optional final payment (also known as the balloon payment) to the overall settlement figure if you want to buy the car.

Since monthly payments with PCP deals only cover the difference in value between the car's initial price and what it's expected to be worth at the end of the contract, the remaining balance of the car’s value tends to be quite large until late on in the contract term.

Car finance settlement figures on Hire Purchase deals

As you pay off the whole value of a car during the course of a Hire Purchase (HP) deal, the monthly payments are much higher than with an equivalent PCP deal. As a result, you’re paying the balance of the car off quicker.

This, plus the fact that there’s no optional final payment at the end of a HP deal (as the deposit and monthly payments already cover the whole value of the car) tends to make settlement figures for HP contracts more manageable - especially towards the end of the contract term. You’ll still have to pay off any early repayment fees, however.

Car finance settlement figures on lease deals

If you have a lease deal (also often known as Personal Contract Hire or PCH), then it’s generally much more difficult to get out before the end of the contract. In some instances you might have to pay off the entire remainder of the agreement, even if you hand the car back.

In other instances - and depending on the precise wording of your contract - there might be an early termination clause. The problem is that if you do have this clause in your lease agreement, you’ll normally have to pay at least half of the remaining costs on the lease.

If you’re looking to end a lease agreement because the monthly costs are unaffordable, you may be able to reduce your payments by extending the lease or by reducing your mileage allowance (though be aware that you'll be charged excess mileage charges if you lower this figure and then exceed it).

Both of these options can reduce the cost of your monthly payments, but whether you are able to do these will be at the discretion of the leasing company. If in doubt, it's good to talk to the company and see if you can find a way together to reduce your costs.

Car finance settlement figure on a personal loan

With a personal loan, unlike with a PCP or HP finance deal, the car is yours rather than belonging to the finance company. As a result, it’s often easier to repay a personal loan early. But remember; if you do so, the lender may well still be out of pocket on interest earnings, so there can be early repayment charges in this instance as well.

How you can find out what your car settlement figure is

Unfortunately, since every contract is different, and other variables such as the age, condition and mileage of the car are so numerous, there's no really accurate online calculator to tell you how much your settlement figure will be.

What’s more, finance providers all operate differently, so the best bet is to get in touch with your finance provider and ask them. They'll be able to tell you the outstanding balance and explain your options for returning the car early, trading it in for another model or settling the balance and buying the car outright.

Can you avoid a car finance settlement figure?

If you are looking to replace your car sooner than planned, but intend to do so with the same lender, it is possible that they will waive the settlement figure in order to retain your custom - but this is far from guaranteed and will depend on individual circumstances.

Is a PCP balloon payment the same as a settlement figure?

The optional final payment figure that you could choose to pay at the end of a PCP term to buy the car is not a settlement figure, though if you get to the end of the contract and pay this figure, the car is yours to keep, with nothing left to pay.

Since this payment is only one option at the end of your PCP contract - you may well choose instead to hand the car back to the finance company - it doesn’t count as a settlement figure. In fact, you can only describe something as a settlement figure if it is a sum you are paying to terminate a contract agreement early.

Alternatives to paying a final settlement figure

Voluntary Termination

If you decide to end your car finance deal before the end of the contract agreement, this is known as Voluntary Termination. The right to do this for Personal Contract Purchase (PCP) or Hire Purchase (HP) deals is covered by the Consumer Credit Act 1974.

However, you’ll have to have paid at least 50% of the total amount due, and you won’t be able to keep the car, since you haven't paid the full amount for it. Be aware that this is half of the total cost of the car, including the optional final payment (in the case of PCP finance), the interest and any other costs included on the contract, not half of the intitial price.

If you haven't paid half of the total amount due, you do have the option to pay however much is left to take you to the 50% point and at this stage you will be able to use Voluntary Termination.

Voluntary Surrender

This really is a last resort option if you have absolutely no money available. In this instance, you return the car to the lender, but still owe the balance remaining on the contract.

With luck, the finance company will recover all of this amount by selling the car at auction for a decent price. But if it sells for less than you owe, you will still be liable for the difference and you can expect the company to chase you for this.

Rather than using Voluntary Surrender, it's better to use Voluntary Termination if you can or explain to the finance company that you need to find a way to cut your payments. Do this and they might be able to help you lengthen your contract, reduce your mileage allowance or find some other way to reduce your financial burden to avoid you falling behind on payments or having to use Voluntary Surrender.

 

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