What should I do if I wish to end my car finance agreement early?

What should I do if I wish to end my car finance agreement early?

What should I do if I wish to end my car finance agreement early?

Maybe there’s a new member to the family on the way or you’ve changed jobs and need a more economical option for a longer commute. It’s often life changes like these that necessitate the need to change your car. But how do you do this when you’re still paying the finance on your current vehicle? For this blog we’ve spoken to Tom Horton, our Sales Director at Zuto, to help make the process clear whilst also highlight some of the key things you need to consider.

Get a settlement figure for your finance

Tom’s first bit of advice is around finding out about your current finance, “As with any other credit agreement you are entitled to end your car finance early. To do this you will of course need to settle the balance with your lender and how you do this will depend on the type of car finance you chose to purchase.”

If you financed your vehicle through HP, you’ll need to pay back the capital outstanding, any admin fees and potentially a couple of months’ interest. However, you’ll also save money on interest by not borrowing the money for as long as the plan was originally taken out for.

If you took out a personal loan, the same kind of repayments will apply but you’ll be able to sell or part exchange your existing car before you settle this finance because the vehicle is not written into your credit agreement.

However, if you apply for further finance on a new car while you still have outstanding finance elsewhere, potential new lenders will take the current unpaid finance into consideration when determining your affordability for new finance. This may result in getting higher interest rates on the new borrowing or even a refusal.

Tom clarifies, “Whatever agreement you have, you’ll need to contact your lender for a settlement figure.”

What’s the market value of your current vehicle?

Tom makes the point that, “When we’re looking to exchange our current vehicle, we’re usually searching for a new one and want to use the value of the current one in part exchange as a deposit for the new vehicle.

“You can find out the current value of your vehicle for free, online, at sites such as Auto Trader and What Car? All you need is your reg plate and mileage details.

But while this figure will take into account any reported accidents or modifications to your car it doesn’t necessarily take into account the current look or wear and tear of your vehicle and this is ultimately a key factor in someone buying it.

Tom’s advice, “If you’re already looking at your next car it’s also worth checking if the dealership offers part exchange and what value they’d give you for your car. Or, you may wish to settle your finance and sell the car independently with an entirely separate dealer.”

Tom concludes, “There’s no right or wrong here and I’d actually recommend checking the value online and with a local dealer. This way, if there is a drastic gap in values you have the option to look around for an alternative buyer and at the same time, you’re not relying on a theoretical figure to based you next steps on.”

Are you in negative equity?

Tom is keen to point out that this next step is critical, “If your car is in negative equity, you need to consider if it really is the right time to change.”

But he adds, “Life changes don’t often happen at the same time our finances sit well and sometimes, lifestyle benefits and the changes a new car will deliver, may outweigh the any cost you might incur from negative equity. But whatever is right for you, do consider your affordability before making any final decision.”

Negative equity happens if the market price for your car is worth less than the settlement figure to end the finance on it. Many finance agreements, such as personal contract plans and hire purchases are in place for a certain period and designed so that when your agreement ends, the vehicle is in positive equity.

This is so that you can return the car, in a pre-agreed condition, and the finance company still has some value in the car you no longer want, whilst you have enjoyed a lower monthly repayment than choosing to buy the car outright in the first place.

Tom adds, “You could of course be in positive equity before your agreement ends but the nearer you are to the end, the likelier this will be the case.”

If you’re looking to change your current vehicle and what some help, why not talk to one of Zuto’s car buying experts. Give us a call on 01625 619944.

Are you unsure about paying a holding deposit to a dealer?

Read our blog on dealer’s expectations here.

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