How does early vehicle settlement work?
With vehicle loans that now extend past the 72-month mark, many of us are likely to settle our vehicle contracts early as we either trade our vehicle in on a new model or come up with the capital to settle the contract early via a private sale or from our own funds. When looking at your vehicle loan amount, you will see the amount owed on the vehicle itself and the interest that you owe, should you finish the contract term.
Settling your vehicle early removes the outstanding interest amount and leaves what is owned on the vehicle itself, meaning that settling your car early is in your best interests if you have the means to. Some finance houses will charge a fee for settling early, but generally speaking, the outstanding interest is waived, particularly as the borrower is likely to take another line of credit with the same finance house, therefore starting the process over again.
The process of settling your finance contract early is simple, you or the dealership at which you are selling or trading your car in will apply for a settlement quote from the financial institution that financed the vehicle.
There are three main ways that a car can be settled
- By a dealer who buys the car as part of a trade-in
- A private buyer purchasing the car with cash or from a loan
- The current owner comes up with the required funds to settle the car
Once the settlement figure is quoted, either the dealership, private owner's cash or finance amount or the current owner's funds must be transferred to the finance house that provided the quote. Once the institution received the funds, they will release the papers for the vehicle along with a change of ownership document, signed by the finance house and ready to be transferred into the new owner's name.
