Paying your car finance early is only ideal if your finances support it. Most individuals wish to overpay the amount to save interest costs. It is an apt move for someone with a bad credit history or score. However, you may not be in luck every time.
If the price of your car falls, then overpayments may not be the best decision. Here, you can instead switch it to a new one. Moreover, you can do so early on PCP after paying a settlement fee.
But what if you are not on a PCP agreement?
Thus, there are multiple things that you must be mindful of before paying the car finance dues early. The blog lists some aspects you must check before approaching the car finance provider for prepayment.
8 Aspects to consider before car finance prepayment
In some conditions, you can pay off the car finance early. However, if at least 50% of the payments remain, you must reveal the proof to pay it back. A lender may deny if you are irregular with the payments. Here are other aspects you must check before overpayments:
1) Reasons to pay the dues early
Individuals decide to clear the dues early due to some practical reasons like:
- Want to save on interest payments
- You believe the car will get cheaper later
- You do not need the car anymore
- To improve the credit score
Most individuals having bad credit car finance in Ireland marketplace, explore the possibilities to boost their credit score by paying the outstanding amount early. It helps them move on to the next big life goals and grab affordable loan quotes.
Whether you want to grab the keys to the car early or part-exchange it, you must pay the difference to the provider. Otherwise, you may not get another finance.
2) Early repayment fees
Most car finance providers charge prepayment fees from customers for paying the dues early. It is a clause that one must abide by when on the agreement. Or if you want to, you must pay the prepayment fees. If you believe like:
“Okay, I will pay it. That’s no big deal.”
You may be making the biggest mistake. It is because prepayment fees are higher than what you expect. It may make the overall loan costlier. What is the point in paying more over the agreement just to end it early?
Thus, always check the charges the lender levies on you to prepay the dues. Some lenders may allow you to do so, but it is rare.
3) Negative equity in the car
As mentioned above, negative equity is a drop in the price of the car since the car agreement date. The overall cost of the car is less than what you owe to the lender.
In this situation, the settlement figure the car finance provider provides is far higher than the loan agreement cost. Thus, continue with the loan payments in that situation. You can own the car and sell it later to someone.
4) Flexibility to pay the balloon payment
If on the PCP car finance agreement, you must pay a balloon payment with other costs to clear the dues. A balloon payment is the amount you must pay to own the car.
The car finance provider calculates it by calculating the difference between the purchase price and the deposit. He further subtracts total monthly payments from the amount he gets by deduction. The final amount released is the balloon payment.
The payment remains the same throughout the loan agreement. However, to keep it intact, you must stick to the agreement terms of the mileage and maintenance conditions.
5) Income and financial liabilities
You may think these aspects are miniscule to owning the car. However, liabilities makes up around 70% of the decision to prepay the loan amount.
If you ask yourself- “Is it for real?”
Well, yes, it is. If your liabilities like debt payments, bills, subscriptions, child school and education fees, energy costs, and rental payments cover most of your income, owning a car outright may not be the best decision.
Opposedly, prioritise the expenses. If you believe you can save even after meeting the important commitments then overpayments make sense.
Additionally, if your income dropped recently or are suffering financial hardship, an overpayment is not the right decision.
6) Agreement term due date
It is also one of the most important aspects that determine whether you should go for overpayment. The agreement term is the date until which you must make car finance payments/instalments to the lender.
If you have 1 or more years on the loan, clearing the dues early will be most profitable for your finances. However, if you are just about to close the agreement and own the car or exchange it, overpayment may not help you much.
Thus, analysing this is very important before opting for overpayments. One usually does it for profit. If there is nothing, then doing so is a futile attempt.
7) Crash or scratch on the car
In a car finance agreement, the borrower is responsible for the maintenance and repairs costs until the loan term. If you want to overpay for a car that needs maintenance, you may not get one. You cannot clear the agreement with overpayment unless you pay the maintenance dues first. Calculate the maintenance sum. If the overall settlement figure proves hefty for the finances, drop it.
Alternatively, you can try to cover up the payments using insurance coverage. Every car finance provider is required to have one before providing the car on finance.
8) Cannot sell the car before paying the dues
Yes, that’s true. Most individuals looking to pay off early want to capitalise on the opportunity. They want to sell the car first before making the settlement payment or the dues. Well, legally that is not possible. You cannot sell a vehicle that’s not completely yours. You must ask the interested buyer to clear the settlement figure. It is possible if you sell it directly to a dealer.
If the amount is high, assure him of paying some. You can get cash flexibility with emergency money loans in Ireland if you lack financial backup. In this way, you can legally sell the car. There should be no outstanding balance while selling the car. You must be a 100% owner.
These are some aspects to consider before prepaying the loan amount on a car finance agreement. Be aware of the fees, charges, penalties, and settlement figures. Identify whether the figure is higher than what you can afford. If yes, then overpayments may not be an ideal solution. Alternatively, if your income supports expenses and shares enough flexibility, you may check it.