SHOP

Price reductions on selected cars, from £250 - £1000 off

skip to main contentskip to footer

Paying off car finance early – is it worth it?

Paying off your car loan before the end date usually involves forking out a huge amount of money, but it does have its benefits

Car finance

Can you pay off car finance early?

If you’re able to pay your loan off earlier, you could be saving yourself a lot of money from the interest found across the monthly payments. However, if you’re thinking of paying it off sooner and you’re in negative equity, you might not want to.

What is negative equity?

In car finance, negative equity is the difference between what you owe the finance company and what your car is worth.

For example, if your car is worth less than the remaining finance owed, then this is known as negative equity. When you come to sell your car or part exchange it, you will need to pay the difference.

A banner reading: 'quality cars for under £200 a month, see what's in stock'

When’s the soonest I can pay off my car finance?

You can pay off the outstanding car finance at any point, but remember that if you haven’t yet paid for 50% of the car, you’ll have to make up the difference to be able to hand it back.

If you have already paid off half of the car’s agreed value, you can simply hand it back and not have to make up the difference – a handy option if you don't want to keep your car.

If you do wish to pay off your remaining car finance deal, ask your lender for a final settlement fee – once this is paid off, the car is all yours.

Why would I pay off my car finance early?

There are a few reasons why you may want to pay off your car finance early:

  • You have the money to be able to and want it to be fully paid off.

  • You think it’ll be cheaper in the long run.

  • You don’t need the car anymore.

Negative equity is the difference that you owe the finance company in relation to how much your car is worth.

For example, if your car is worth less than the remaining finance owed it then this is known as negative equity. So, when you come to sell your car or part exchange it, you will need to pay the difference.

Watch out for early repayment fees

One thing you should be aware of when ending your car finance agreement early is that most finance lenders will charge you an early repayment fee.

This fee is normally worked out based on one or two months’ worth of interest, but these do vary. This will work out less overall than paying the interest each month, unless you’re right at the end of your agreement.

What happens when I pay off my car finance?

Once your car finance is paid off, you will own the vehicle outright and can either keep it or sell it on.

Are there more ways to pay off my car finance loan sooner?

There are a few different ways to pay off your car finance loan sooner if you cannot afford to pay it off in one lump sum.

Increase how much you pay each month

If you’re in a position to pay more for your car each month, then you could consider speeding up the process. For example, making two payments a month would drastically reduce your loan time and will save you interest.

Make the occasional larger payment

If increasing your monthly payments isn’t an option, then you could always pay a lump sum of money every now and again if this suits you best.

Refinance your loan

Another option is to refinance your loan to a cheaper rate of interest and/or a shorter term, but this is only usually possible if you already have a good credit score. You should also consider any interest penalties and weigh up the total amount payable over both agreements to see if this is the best option for you.

A banner reading 'Money-saving motoring tips. Get our free email newsletter'

Learn more about car finance: