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When you bought your car three years ago, you thought it was the most comfortable on the market… but three years later, those seats are just killing your back. Or maybe things have changed, and you’re not meant for each other anymore, now that you have a wife and a couple of kids.
There may be a million reasons for wanting to end your car loan early and, depending on which applies to you, you’ll have to figure out if it’s really the best option for your finances. To begin with, here’s a little compendium on what you can expect if you do decide to go through with it.
Yes, no, maybe? Well, it can depend on a number of factors. You can start by thinking about the following:
You have two main ways of getting out of a PCP deal:
This can be a solution if you can’t afford the payments anymore and can do without the car. It allows you to return the car and walk away without paying any extras.
However, you’re legally entitled to this only if you’ve already paid off half of the overall cost (which includes the car value plus interest and fees). This clause can be a lifesaver if you’re experiencing financial difficulties, but unfortunately it doesn’t apply in a lot of cases. Because of the way PCPs are structured (with a fairly big balloon payment at the end if you want to keep the car), usually you’ll only have paid off half of the overall cost towards the end of your loan.
Voluntary termination is also a better option if the car has depreciated more than expected and you don’t want it anymore. That’s because if you pay off the whole sum early instead, you’ll end up becoming the owner of a car that’s worth less than you’ve paid for.
If you have quite a chunk of money to invest in this, it’s a viable option. You can get in touch with your finance company and ask for a settlement figure to terminate your loan. The settlement amount will include all the money you still owe, plus (in many cases) a fee to compensate the company for the interest you’d have paid if you continued the loan. You’ll also need to cover the balloon payment.
Once you’ve paid the whole sum, you’ll become the owner of the car. You can then:
With HP, your options are similar to what you can do if you want to end a PCP deal.
Just like with PCP, you can return the car and walk away without paying anything more if you’ve already covered at least half of the overall cost.
The main difference is that HP doesn’t entail a balloon payment and comes with higher monthly payments, so you’ll usually reach that point earlier. Moreover, with HP you borrow more money than with PCP, so if you return the car early you’ll save more on interest.
However, keep in mind that if you’ve already paid back more than half of the car’s value (which is more likely to happen with HP), you won’t be entitled to compensation.
Similarly, if you have a lump sum to invest, you can pay off your HP and become the owner of the car. Your settlement figure will be the outstanding amount of the loan plus a fee, which can’t be charged if you’re only repaying early £8,000 or less. If you’re repaying more, the fee is capped to the lower between:
If the lower of the two is the remaining interest, you won’t have saved any money by paying off the loan early. Like with PCP, once your debt is settled and you’ve effectively bought the car, you can either keep it or resell it, depending on its value and your needs.
Warning: late repayments can cause you serious money problems. See our debt help guides.
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