£6,971 a month, £709 total
Estimated settlement
£6,971
to clear it today
Interest you'd save
£709
vs running to the end
Your settlement figure
- If you ran it to the end
- £7,680
- Lender may add up to ~1 month
- £6,971–£7,026
This is an estimate. Your lender works out the exact figure under the Consumer Credit (Early Settlement) Regulations 2004 and may add up to about one month's interest — always confirm with them.
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How we work this out
The settlement figure is the present value of your remaining payments (plus any remaining balloon on PCP) at your contract rate. We also show what you'd pay if you continued, so you can see the interest rebate.
Your lender sets the exact figure under the Consumer Credit (Early Settlement) Regulations 2004 and may add up to about one month's interest. Always confirm with them.
Full method: how we calculate.
A car finance settlement figure is the amount you pay to clear your PCP or HP deal in full today. Enter your monthly payment, APR, months left and any balloon still owed on a PCP, and the calculator estimates the figure and the interest you'd save versus running the deal to the end of the term.
Settling early is one of the few ways to cut the total amount payable on a deal you already have. Under the Consumer Credit Act 1974, you're entitled to a rebate of the interest you haven't yet been charged when you pay off a regulated PCP, HP or loan early, so the settlement figure is always less than your remaining payments added up. Below, we cover how the figure is worked out, when settling pays and other ways to end a deal.
What is a settlement figure?
A settlement figure is the amount you'd pay today to clear your car finance in full and own the car (or close the deal) outright. It's the outstanding balance with a statutory rebate of the future interest you haven't yet been charged.
Ask your lender for the settlement figure in writing. It's usually valid for a set number of days (often 28), after which you'd need a refreshed figure. The settlement is always less than your remaining payments added up, because the lender has to give you back the interest you would have paid on the months you're cutting off.
Your right to settle early
Can you pay off car finance early?
Yes, you can settle car finance early at any time, and the Consumer Credit Act 1974 gives you a rebate on the interest you haven't yet been charged. The right applies to all regulated credit agreements.
On PCP and HP, settling early means you pay the outstanding balance and the car becomes yours. On a personal loan, it means the loan is closed. The lender may add up to about one month's interest as an early-settlement adjustment (a small charge for the administrative cost and lost interest), so the figure is a little more than the bare balance.
Put your monthly payment, APR and months left into the calculator above for an estimate, then confirm the exact settlement figure with your lender. Their figure is the legal one and includes any fees and the precise rebate calculation.
How is the settlement figure worked out?
The settlement figure is the value today of all your remaining payments at your contract rate, plus any remaining balloon, not simply the payments added up. Because future payments are worth less than cash today, the figure is discounted.
Say you have 24 payments of £320 left at 9.9% APR. Added up that's £7,680, but the present value of those payments today (what they're worth to the lender right now) is about £6,970. The difference, roughly £710, is the interest rebate you receive for settling early.
| Settle now | Continue to end | |
|---|---|---|
| Remaining payments | 24 × £320 = £7,680 | 24 × £320 = £7,680 |
| Settlement figure | ≈ £6,970 | — |
| Interest saved | ≈ £710 | — |
Worked example
Is it worth settling early?
Settling early is worth it when the interest you save beats what the money would earn elsewhere, and it ends the debt. Compare the APR on your finance with the after-tax return you could get on the cash.
If your finance APR is 9.9% and the best savings account pays 4% after tax, settling is a clear win: you save 9.9% and give up 4%. If you have higher-interest debts (credit cards, overdrafts), clear those first. Keep some cash as an emergency buffer too, and don't settle if it would leave you stretched.
If you can't settle in full, you can still overpay each month to cut the interest and shorten the term, or, on PCP and HP, use voluntary termination once you've paid 50% of the total amount payable.
Other ways to end a deal: VT and selling
Beyond settling in full, you can hand the car back through voluntary termination or sell it to clear the finance. Each route has different maths and different conditions.
- Voluntary termination: hand a PCP or HP car back once you've paid 50% of the total amount payable, with nothing more to pay unless the car has been damaged through a failure to take reasonable care of it. See voluntary termination. It's a legal right under the Consumer Credit Act 1974.
- Sell or part-exchange: settle the finance from the sale proceeds and keep any equity above the settlement figure. See selling on finance.
- Check for negative equity first: if the car is worth less than the settlement figure, you'd need to cover the shortfall. See the negative equity calculator.
The actuarial rebate, in plain English
The early-settlement rebate is worked out actuarially under the Consumer Credit (Early Settlement) Regulations 2004, so you get back the interest on the months you're cutting off, weighted toward the early part of the term when interest is heaviest.
On a fixed-rate loan, interest isn't spread evenly. It's front-loaded, because the balance is largest in the early months. The statutory rebate reflects that: settling halfway through a 48-month term returns well under half the total interest, because most of it is charged in the first half of the term. The lender may also add up to about one month's interest as an early-settlement adjustment under the 2004 Regulations, which is why the settlement figure is a shade above the bare present value.
Settling earlier saves more interest than settling later, but settling at any point still saves something. In the £320-a-month example with 24 months left at 9.9% APR, the rebate is about £710. Settle with 36 months left and the rebate is larger, because you're cutting off far more interest-heavy months.
Rule of thumb
Settle in full, or overpay instead?
If you can't settle in full, overpaying each month cuts the balance and the interest without committing all your cash at once, and on a regulated agreement you have a statutory right to overpay.
Overpaying is the partial-settlement route: you pay extra on top of the monthly payment, the lender applies it to the balance (not the next month's payment), and the term shortens or the monthly payment drops. On a £20,000 HP deal at 9.9% APR, overpaying £100 a month from month 12 can knock around eight months off the term and save over £700 in interest. The overpayment calculator shows the figures for your own deal.
Our view: full settlement wins if you have the cash and want the debt gone; overpaying wins if you'd rather keep a cash buffer and still cut the interest. Both are rights under section 94 of the Consumer Credit Act 1974 (the lender may add up to about one month's interest), and neither shows on your credit file as a negative event.
Common settlement mistakes
What if you're in negative equity?
If the car is worth less than the settlement figure, you're in negative equity and would need to cover the shortfall to clear the finance. That matters most if you're selling or part-exchanging.
Work out the shortfall with the negative equity calculator. If you're settling in full with cash, negative equity doesn't block you: you pay the settlement figure and own the car. It only matters if you're selling or swapping into a new deal and the sale price won't cover what you owe.
Don't roll negative equity into a new deal
Settling to sell the car
If you're selling a car on finance, you settle the outstanding balance from the sale proceeds and keep any equity left over. Most buyers will want the finance cleared before they pay.
Get a settlement figure from your lender, agree a sale price, and use the buyer's payment (or a bridging loan) to settle the finance so the lender releases ownership. If the sale price is more than the settlement figure, you keep the difference; if it's less, you cover the shortfall.
Frequently asked
What is a car finance settlement figure?
Can you pay off car finance early?
How is an early settlement figure calculated?
Is it worth paying off car finance early?
Will settling car finance early save me money?
Does settling car finance affect my credit score?
Can I sell a car on finance by settling it?
How is the interest rebate worked out?
Is settling in full better than overpaying?
Sources
We cite regulators and official UK sources only.
- Consumer Credit Act 1974legislation.gov.uk
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