Car finance settlement figure

The rebate is the part people miss. Because you are ending the agreement early, you have not used the credit for the full term, so the lender must return the interest attributable to the unused period. On a hire purchase agreement any optional final payment and option-to-purchase fee are also included in the settlement, because settling means you are buying the car outright.

Under the Consumer Credit (Early Settlement) Regulations, lenders may defer the settlement date by up to 28 days, plus an extra 30 days on agreements longer than 12 months, 58 days in total. In practice this means the rebate is calculated as if the agreement ran up to 58 days beyond the day you settle.

The effect is that settling early costs slightly more than a straight pro-rata calculation would suggest. It is lawful, it is standard across the market, and it is the reason your settlement figure looks higher than your own arithmetic.

• Ask your lender, not the dealer, in writing, by phone or through their app.
• You have a statutory right to receive it; it should arrive within a few working days.
• The figure is quoted as valid to a specific date, normally between 10 and 28 days.
• If you settle after that date, request a fresh figure, because interest continues to accrue.
• Voluntary termination is a separate right and produces a different outcome entirely.

If the car is worth more than the settlement figure you have positive equity, and the difference becomes the deposit on your next car. If it is worth less, the shortfall is negative equity, and it either has to be paid or rolled into the new agreement, which means borrowing against a car you no longer own.

Get the settlement figure before you agree a part-exchange price, not after. It is the only way to see which side of that line you are on.