What is a settlement figure?

When looking at car finance agreements, you might have heard the term "settlement figure" mentioned by your lender or dealership, but what does this actually mean? We’ve put together this comprehensive guide around this topic so you can understand what it means and what you might need it for, which will come in handy if you’re thinking of taking on a new car finance agreement, or if you’re thinking of paying off your car finance early. So let’s start with the biggest question, what actually is a settlement figure?

What is a settlement figure?

A settlement figure is the total amount required to pay off your car finance agreement in full before the agreed end date. In other words, this is the figure you need to get off your lender if you want to fully pay off the loan before the originally-agreed end date. This figure includes all outstanding costs, including what’s left of the balance on the original loan, any accrued interest and potentially additional fees or charges. Settlement figures can be requested for most types of car finance agreement, including Hire Purchase (HP) finance and Personal Contract Purchase (PCP) finance.

How does vehicle settlement work?

Vehicle settlement involves making a single payment to clear the remaining debt on your car finance agreement, instead of continuing with your monthly instalments until the end of the term. By settling early, you can clear your remaining finance balance, avoiding future interest payments. In a Hire Purchase (HP) agreement, this means gaining ownership of the car. However, in a Personal Contract Purchase (PCP) agreement, you may still need to pay the final balloon payment to own the vehicle. This can be an attractive option if you’re looking for a bit more financial flexibility, or if you’re looking to upgrade to a new vehicle sooner rather than later.

What is the settlement figure on my car?

Your settlement figure is the current amount owed to your finance provider to settle the car finance agreement. It includes the outstanding main balance of the loan, any interest you have accrued up to the settlement date, and any applicable fees, such as early repayment or excess mileage penalties. Getting this figure is usually as easy as asking your finance lender or car dealership, and is important to help you plan your next financial move.

How is the settlement figure calculated?

Your settlement figure is worked out based on several different factors, including the outstanding balance of the base loan, the current market interest rate, and the time left until the official end of the finance loan term. It also takes into account any additional charges or fees, such as early repayment penalties, which will be used to work out your final settlement figure alongside the other factors. 

How do I find my settlement figure?

The easiest way to find your settlement figure is to get in touch with your car finance lender or the dealership you bought the car from (if applicable). They will be able to quickly work out the exact amount you’ll need to pay to settle your loan, including all the additional interest and fees if there are any. Some lenders also offer an online finance portal where you can log in yourself and see what’s left to pay on your agreement, though this may not be a full settlement figure, so it’s always best to get in contact and double check the amount before you make any financial decisions. 

Can I settle my car finance early?

Yes, in most cases, settling your car finance agreement early is possible, depending on the terms and conditions outlined in your finance agreement. However, you should always check your agreement or contract carefully, as there may be early repayment penalties or fees for settling early. To understand the financial implications of settling early, you should request a settlement figure from your lender. This may require a formal request and could take a few days to process.

Is a settlement figure cheaper?

Choosing to pay the settlement figure could potentially save you money in the long run, as it stops the accumulation of interest by ending the loan sooner than it otherwise would have done. So you’d be paying a lower amount overall because there’s less interest to pay. However, it's still important to check and take into account any early repayment charges or fees, as this could reduce the overall saving depending on how big these charges are. Not every finance agreement charges these fees, so you should check with your lender or read your agreement to see if there are any clauses about early settlement.

What happens when you request a settlement figure?

When you ask your lender for a settlement figure, they will check your account and work out the total amount you would need to pay to settle the agreement early. They’ll look at how much you’ve already paid, how much is left of the main outstanding balance, and how much interest is still left to pay. They’ll also add on any additional fees or charges (like an early settlement fee), if these are written into your contract. They may then send you a breakdown of all these different elements, so you might be able to see everything laid out in detail and make an informed decision on whether you want to settle early.

How do settlement agreements work?

Your finance provider or dealership will send you the settlement agreement to review, and will advise you on the steps you need to take next. A settlement agreement is a legally binding contract that sets out the terms of settling the debt early. It will contain the total settlement figure you need to pay, including any additional fees, and the conditions that need to be met for the agreement to be considered as fulfilled. It’s important that you stick to these conditions to make sure you settle the finance in the correct way without risking any legal issues or negative effects on your credit report.

Can you negotiate a car finance settlement?

Some finance providers may consider negotiating a settlement figure, however, not all lenders allow negotiations, and the final decision will depend on their policies. Factors such as financial hardship or a history of making payments on time and without issues may boost your bargaining position. However, other factors like the provider's policies and your individual circumstances are likely to also have an effect on how likely it is that you will be able to negotiate your car finance settlement. If you’re a confident bargain negotiator, it may be something you might consider.

Will a car dealer settle my finance?

It’s possible. Certain car dealerships may offer to settle your finance on your current car as part of a transaction, especially if they have incentives for selling a new vehicle to you. This takes away the headache of trying to pay it off yourself separately, as it’ll be wrapped into the new car finance deal. Nevertheless, it’s always smart to check the terms and conditions of these types of arrangements to make sure it’s not going to cause financial issues later down the line for you. For example, settling your current finance as part of a new finance agreement may mean higher monthly payments than you’re currently making. Always check the terms before proceeding.

Is a settlement figure tax-free?

Settlement figures themselves may not subject to tax, however, any interest payments or administrative fees included in the settlement figure may be taxable. This can vary from situation to situation, so it’s worth asking for advice from a tax professional if you’re concerned about tax when paying a settlement figure.

Can you negotiate a settlement figure?

Some finance providers may consider negotiating a settlement figure, particularly in cases of financial hardship or early repayment requests. However, not all lenders allow negotiations, and approval depends on the lender’s policies. Your ability to negotiate hinges on various factors, including your financial circumstances and payment history, as well as your own confidence in finance negotiation. Communicating openly with your provider and being honest about your reasons for negotiation may improve your chances of negotiating your settlement figure to something more desirable for you, particularly if you have a strong history of making your payments on time.

Do I own the car if I pay the settlement figure?

Yes, once you’ve paid the settlement figure you gain outright ownership of the car, and the finance agreement is deemed settled. Official ownership of the car will be transferred into your name, and you will be free to do whatever you like with the vehicle from then onwards. In a Hire Purchase (HP) agreement, paying the settlement figure means you gain full ownership of the car. In a Personal Contract Purchase (PCP) agreement, you may still need to pay the final balloon payment to transfer ownership into your name.

How do I end my current finance agreement?

If you want to end your current finance agreement you might have two options:

1. Request a settlement figure and pay off the finance in full.

2. Use Voluntary Termination (VT) if you’ve paid at least 50% of the total amount payable under the Consumer Credit Act 1974.

Does a settlement figure include arrears?

Some lenders include arrears in the settlement figure, but others may require overdue payments to be cleared separately. Always check with your lender.

What is a reasonable settlement agreement?

A fair settlement agreement balances what's left on your loan, the interest, and any fees, without putting too much strain on you financially. The actual amount of a settlement agreement is going to vary depending on the value of the vehicle and how much is left to pay. Communicating openly with your finance provider may help you secure a fair and reasonable settlement agreement that feels manageable for you.

Do you pay tax on settlements in the UK?

Car finance settlement figures are not taxable for personal finance agreements. If the vehicle is used for business or VAT-registered, tax rules may differ. It’s best to ask for guidance from a tax professional to make sure you understand the tax implications on paying car finance settlements, as taxes on settlements can vary in different situations.

What is the difference between settlement figure and outstanding balance?

While they sound similar, these two figures are slightly different. The settlement figure is total required to pay off the loan early, including any fees or interest adjustments. The outstanding balance is amount left if you continue making payments as scheduled.