Early renewal in car finance: How does it affect me?

Not many people know you can get out of your car finance deal earlier than expected with an early renewal.

Taking out a car finance loan is a big commitment. You are essentially assuring the finance company that you are able to pay the agreed fixed sum across an agreed length of time - generally between 24-60 months - without any issues.

It is a long time to be paying off such large sums, especially if you are already stretching yourself a little further than you perhaps should have done at the start.

Personal circumstances can change very quickly, and that has been particularly evident over the past year or so with the coronavirus pandemic causing job losses and tragic loss of life.

But, on the whole, finance companies would refuse your loan application if they didn't think you could pay it back, even if your circumstances did change, as they review your credit history and any previous loans you've taken out.

Do you know if your car is in a positive or negative equity position? Click the banner below to sign up to Car Credible for free, to simply discover everything you need to know about your car finance deal, all in one place.

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Car finance is an ideal option for anyone that wants to make fixed monthly payments, perhaps doesn't have too much in savings behind them, maybe wants a car that would ordinarily be a little out of their price range, and also those that like changing their car every few years and not necessarily owning one outright.

Early renewal

The final two points are quite key and many people that have a car finance deal are actually unsure it's even possible.

If you're paying off your finance deal, it's not unrealistic to assume that you can't change your car or your general terms until it finishes.

However, most finance agreements can be settled early, but only once your car gets into a positive equity position, which is when the value of your car is higher than the amount you have left to pay on the deal.

If you do find yourself in this position, you could have the opportunity to settle your deal, using the current car you are financing as leverage, before finding something brand new.

This type of situation can be done on both a HP (Hire Purchase) or PCP (Personal Contract Purchase) finance agreement.


How to pay off your early settlement figure

The first step you need to take to proceed with this is to contact your finance company to request - and pay - your early settlement figure which they usually require within 28 days of giving you notice.

Once paid off, you are then entitled to replace your car with a brand new one earlier than you anticipated when first taking out the deal, and potentially upgrading to a more expensive car for little to no extra increase in what you were previously paying per month.

You will of course be ending your current agreement and beginning a new one, so if you had 24 months left remaining on your previous deal of 48 months before paying off the early settlement figure, for example, you would then enter a new one and select a new length of term, again likely between 24-60 months based on your budget.

Keep track and monitor your car finance deal on a monthly basis by signing up to Car Credible for free. Follow the banner below to stay on top of your deal and know exactly when your car gets into positive equity.

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Always ensure to read the full terms and conditions before agreeing and signing anything as it is a binding contract and anything you agree to pay per month will be upheld.

It's best to create your own monthly budget with outgoings and disposable income so you can be fully sure exactly what you have to play about with each month.

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