Car finance is taken out when you want to purchase a new car but want to spread the cost over a certain period of time, but what about if you want to pay that car finance off early, is that possible. Here we will discuss is it is possible to be able to pay off your car finance off earlier than intended.
If it is a possibility for you to be financially comfortable enough to pay off you car finance early then this could help you in the long run. It means that you can make big savings on the interest that you will usually pay on your car finance deal but if you are in negative equity this may not benefit you at all. There are often fees that are presented when early repayments occur so this is something to be wary of.
This is all dependant on your finance company though. If you are with a Finance company that allows you to pay off your car early then here we will give you some tips to reduce down your payment period and in turn reduce down the money spent on interest.
Early Repayment Fees
Early repayment fees can often be put in place by a lot finance companies. If you are able to repay early before the legal requirement says you have to then the chances are that you will have to pay a resettlement fees (early repayment fees). These fees vary depending on the company your finance are with, it can amount upwards of two months’ worth of interest that they would of lost out on. It is best to check the rate that is in the contract set by the company.
Are you in Negative Equity?
Negative equity is when the amount of money owed to the finance company for the vehicle is higher than what the vehicle is actually worth. This is not a rare situation especially with new cars as they often deplete in value months after purchase. So if you are planning on cancelling your finance or selling or trading your car in before you have fully paid off your finance loan then it will likely put you into negative equity. Sometimes it is suggested that you would be better off waiting to settle or contacting the finance company and asking for a settlement valuation as this will inform you how much is left to pay on your car.
Early loan repayments
If paying off your car early is still something you want to do even if there is a fee involved then here are some ways that can guide you into settling your car finance earlier.
- Increase repayments
This is something that you can do if the company you have finance with agree to more than one payment a month. This is something you can consider doing to help you pay off your finance sooner. This will mean that you will be saving money on the interest. This is only possible if it is agreed by the finance company you are financed with.
- Round up that payment
Rounding up the payment on you finance repayments can be a way to help pay off your finance earlier. You can do something as simple as rounding up your payments to the nearest £50/£100. Although this may not seem like a lot, it all adds up in the long run ensuring that you will pay your off finance loan sooner than you are meant to.
- One big payment
If you happen to be financially comfortable enough to make a large payment then it will help take a away a large portion of your debt which will also mean you will pay less interest on the finance in the long term. This is a very unusual way of early repayment just due to applying for finance usually means you want to spread the cost over a longer period of time.
It is a possibility that you can refinance your car loan. You can do this if you have good credit as it will can give you a shorter loan with a better interest rate.
What if my finance provider charges me an early repayment fees?
There is a possibility that the above tips won’t work as there are certain finance deals that add on an early repayment fee. This can mean that ultimately you wont be saving anything. There is also interest that is called precomputed. This is a type of interest that means you will have to pay the same amount of money even if you pay it off earlier.
In the long run the idea is to ensure you make your payments on time, if you miss a payment then it adds late fees which will mean it will take longer to pay off your finance.
The Car Finance Companies provide you with a massive selection of used cars and vans. We are based in Liverpool, Merseyside but can deliver UK wide. Check out our stock range and give us a call on 0151 523 4000 to get started on getting that dream car today!