Early Settlement

Meaning and Definition

Early settlement, also known as early repayment or early payoff, refers to repaying a loan or car finance agreement before the agreed-upon term. It involves paying off the remaining outstanding balance of the loan, including any applicable interest and fees, before the scheduled end date of the loan agreement.

Why it is important to know

Understanding early settlement is important because it provides flexibility and potential cost savings for borrowers. By settling a loan early, you can reduce the overall interest paid over the loan term, potentially save money on interest charges, and become debt-free sooner. However, it's important to review the terms and conditions of your car finance agreement to determine if any early settlement penalties or fees apply.

Example in car finance

Suppose you have been making monthly payments on your car finance agreement for two years, and you have the financial means to pay off the remaining balance. By opting for early settlement, you can save on future interest charges and gain ownership of the vehicle outright. However, it's essential to check the terms of your car finance agreement to determine if any early settlement penalties or fees are applicable.