Can you pay off car finance early?

Roman Danaev

9 March 2022

Paying off your car loan earlier allows you to get rid of your credit burden sooner and save on the interest that would otherwise be paid to the bank. Therefore, as soon as the opportunity arises, many people try to pay off car finance early.

It is important to understand that the lender loses part of their profit if the entire debt is repaid before the due date. Hence, it is important to read the terms established in the contract before proceeding. Learn how to repay an auto loan properly.

Early repayment of a car loan is possible and, in some cases, necessary. But you need to know certain rules and conditions of closing a car finance deal early. You will learn about them in this article.

Is it a good idea to pay off your car loan early?

Early payoff of your car finance is an excellent idea if you can afford it and have been planning on paying off the debt, but there are many things that could go wrong with this decision. These considerations should be made before taking out any loans.

Early repayment

You should think twice before repaying your loan early. Early repayment are costly and can add up, especially if the interest rates on them have increased since you originally took out this loan!

Negative equity

You may want to hold off on paying off your car loan if the appraised value of the car sale is less than the amount you will need to pay.

Financial gain in early repayment

Why not get back more than you spent? If this is possible, then go ahead and sell your car. You'll end up better off financially anyway!

Total cost of the loan

The decision to pay off or go through with a plan often depends on how much you're willing to spend. If your budget allows, paying upfront may be cheaper than continuing and accumulating more costs later due to increasing interest rates.

Admin charges when settling the loan

The early payoff can lead to costly for you. Your provider may charge a just because they have paperwork or have to perform other tasks. This may be uncommon, but it's not the only reason why this happens!

The condition of the car

The condition of your car is important. If the vehicle is not in good condition when you return it, there may be a hefty for repairs.


Paying off your car early could save you money in interest.

Is it possible to end a hire purchase (HP) finance deal early?

Hire Purchase is an agreement whereby you make monthly payments and become the car owner at the end of the repayment period. There are two ways that HP offers an escape route: return the vehicle, or pay an extra (between £100 to £200) to buy out the contract early.

You can always end the contract early and without penalty if you pay off more than half of what was loaned to  you.

Paying off car finance early is possible, but it's important to know the risks:

  1. If you haven't paid more than half of the cost of the vehicle before handing it back, you should be ready to make up the difference.
  2. You should always take care of your car. If you don't, then there's no chance of a refund or even a return.
  3. You also won't be able to hand back your car early in the contract period.

Can you settle personal contract purchase (PCP) early? 

Suppose the end of your PCP loan is approaching, and you're not sure what to do. You could either:

  • return the car and pay at least half its cost;
  • pay the final settlement and become the owner of the car.

If you decide not to keep the car, there will be no refund on what has been paid. The car needs to be in pristine condition with no damage or accidents reported.

Are there any rights I have when ending my car finance early?

A Personal Contract Purchase (PCP) or a Hire Purchase (HP) agreement can be voluntarily terminated under Section 99 of the Consumer Credit Act 1974.

The process isn't as simple as just canceling your payments. Finances have different rules for ending payments.

Ways to pay off your car finance loan sooner

If you're keen to pay off your car loan early, here are a few tips on how you can do it.

Online calculator for monthly payment

Wondering how much you can save on a car loan and how much you have left to pay off? There is an online car finance calculatorthat will tell you the answer. All you need is the total amount you owe, your monthly payments, and your interest rate to get the numbers you want on the screen!

Never skip payments to avoid ruining your credit history

You should never skip a single payment on your car finance. Skipping even one can cost you more in interest and lengthen the term of your loan, so don't do it!

Pay extra money each month

Sometimes, it can be worth paying more in order to get your loan paid off faster. Why not settle for two monthly payments instead of one? The interest rates on loans are much lower if you do so.

Rounding up your monthly payment

Remember to round up your monthly repayments. Rounding up can greatly benefit you in the long run.

Make an extra-large payment for your auto loan

If you find yourself with unexpected money, don't just put it away. Make a large payment on your loans and leave less interest for later!

Refinance your car finance

Having a good credit score means that you may be able to refinance your car loan and get better interest rates.

Can paying off your car loan early hurt your credit?

Voluntary termination of your car loan will not negatively affect future borrowing opportunities, as it appears on a credit report. It is better than missing repayments, which can significantly impact your score.

Can I end my finance agreement early if i've had a crash?

You may not be able to end your agreement without paying the outstanding finance amount if you've been involved in a crash and had your vehicle written off. However, any insurance payouts are likely available for covering these costs, so it's best just to ask.

What if my finance provider charges precomputed interest?

The world of car financing is full of tricks and gimmicks that can make it difficult to pay. One such trick is precomputed interest rates, which means you pay the same amount no matter how early you pay the car off.

Always try not to miss a single monthly payment - you'll face late, and your loan will drag on even longer.