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How Early Settlement Works in Hire Purchase Agreements

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August 21, 2025
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How Early Settlement Works in Hire Purchase Agreements
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Paying off your car finance early can be a smart move. For many drivers, it’s a way to save money on interest and take full ownership of their vehicle sooner.

If you’re on a hire purchase plan, settling up ahead of schedule could lower the total cost of borrowing, but it is not always as simple as just paying the balance.

Keep reading to learn how the early settlement process works and what to expect when you request a final figure from your lender.

What Early Settlement Means

Early settlement means paying off your HP contract in full before the end of the agreed term. Once this is done, the car becomes yours outright, and you no longer have to make monthly payments. Most lenders allow early settlement, but the exact terms will depend on your agreement.

If you’re thinking about ending your HP finance agreement early, the first step is to contact your finance provider and request a settlement figure. This will show how much you need to pay, including any interest or charges remaining.

How the Settlement Figure Is Calculated

The settlement figure isn’t simply the remaining balance of your monthly payments. Lenders often work it out so that interest is spread unevenly over the term, meaning more is paid at the start of the agreement and less towards the end.

This can make early settlement slightly more expensive than you might expect. Even so, it can still save you money overall if you are only partway through your contract. Some agreements may also include a small charge or early repayment fee, which will be shown in your quote.

Your Legal Rights Under The Law

Under the Consumer Credit Act 1974, you have the right to settle your hire purchase agreement early at any time. This law also states that you must be given a clear and accurate settlement figure when requested.

If you’ve already paid more than half of the total amount due, you may also have the option to voluntarily terminate the agreement. This is different from early settlement, but it’s still worth considering if you’re unable to continue the payments and don’t want to keep the vehicle.

Things to Check Before You Settle Early

Always ask your lender if there are additional fees. These might include early repayment charges or admin costs. Review your contract carefully or speak to your provider to confirm.

You should also check whether you’ve reached the point where most of the interest has already been paid. Settling too late into the term may offer less of a saving compared to earlier in the agreement.

Final Thoughts

Early settlement in a hire purchase agreement is a flexible option for drivers who want to own their car sooner or cut overall costs. By knowing how the settlement figure is calculated and what legal protections you have, you can make an informed choice. Whether you’re aiming to save money or wrap up your finance early, it pays to be well-prepared.

Read more:
How Early Settlement Works in Hire Purchase Agreements

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