When you finance a car, you take out a loan for anywhere between two and five years. But while you’re still paying off the finance on your existing car, you may be casting a casual eye on a newer one. Or you simply want to return the car early. As part of the sales process, car dealers can help settle any outstanding loans on the vehicle. They can answer questions about the process, the settlement amount, and what it means for the seller’s finances. If you think you have to wait until the end of your contract, that is not true – there is actually a way out of car finance.
In short, settling finance is possible. But there are a few things you’ll have to take care of first.
It’s exciting to think about getting a new car, but what if you still owe money on your old one? You may be wondering if the dealership can settle the debt for you as part of the sale. You can settle your current car loan agreement with a dealer, which is good news.
This article tells you everything you need to know about how to settle your car loan with a dealer, what to look out for, and how the process works.
How Does Settling Car Finance Work?
When you buy a new car from a dealership, you need to take a few important steps to set up your car loan:
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Get your settlement figure – Contact your finance company to obtain the exact settlement amount needed to clear your loan. This is the total outstanding amount including any fees or interest.
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Provide documentation – Give the dealership proof of your settlement figure along with details like your account number. This gives them what they need to pay off your loan.
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Sale agreement – Negotiate and finalize the sale of your new car with the dealer. This will likely involve a trade-in of your old car.
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Dealer pays lender – The dealership will pay your finance settlement amount directly to your lender, clearing your loan.
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Receive confirmation – Your lender will send confirmation that your finance has been settled in full. You can now complete the purchase of your new car.
The main benefit is that the dealership takes care of the whole process during a normal sale. You don’t have to call your lender or spend money on the settlement yourself.
Top 5 Benefits of Settling Car Finance Through a Dealer
Having a car dealership settle your existing finance agreement offers several advantages:
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Convenience – The dealer handles paying off your loan so the process is hassle-free for you.
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Speed – Settling your finance through the dealer is often faster than doing it yourself.
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Simplicity – It streamlines the purchase of your next car into one straightforward transaction.
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Negotiation – The dealer can help negotiate your settlement amount with the lender if needed.
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Clean break – You can fully sever ties with your old lender and focus just on the new finance terms.
For most people, the simplicity and convenience are the biggest draws of having the car dealer settle your finance.
What to Keep in Mind When Settling Car Finance
While using a dealership to settle your auto loan has benefits, there are a few things to keep in mind:
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Settling the loan early may incur fees, usually 1-2 months of interest. Be sure to account for these.
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Your credit score may take a small hit from closing an active account. Expect a 10-20 point drop.
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Refinancing tends to have lower fees than settling, so compare options if you still like your current car.
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If you have equity, you may get more money selling the car outright rather than trading in.
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Avoid settling finance just to get a lower monthly payment. Focus on the total long-term costs.
As long as you are aware of these considerations, using a dealer to settle your existing car finance is generally a smooth process that can save you time and effort.
Step-by-Step Guide to Settling Your Car Finance at a Dealership
Follow these key steps for a seamless experience settling your auto loan through a car dealership:
1. Review your financing contract – Understand any early repayment penalties or restrictions. Make sure the lender can provide a settlement figure.
2. Ask for the settlement amount – Contact your lender to get the exact payoff amount valid for around 7-10 days.
3. Gather paperwork – Have your driver’s license, car title, account number and payoff quote ready.
4. Negotiate the new car deal – With trade-in and new financing terms locked in, you can now finalize settling the old loan.
5. Authorize dealer to pay lender – Sign paperwork authorizing the dealer to pay your settlement amount to your lender.
6. Complete new car purchase – Once the lender confirms your loan is settled, complete the deal for your new car!
Following this process will allow the dealer to take care of settling your old car finance with minimal hassle to you.
Frequently Asked Questions About Settling Car Finance
Here are answers to some common questions about having a dealer settle your existing auto loan:
How long does it take to settle the finance?
It usually only takes 1-3 business days for the dealer to pay off your loan once they have the settlement amount.
Does settling my finance damage my credit?
There is a small impact from closing the account, but as long as you have a new car loan it will not significantly damage your credit.
What fees should I expect to pay?
Most lenders charge 1-2 months of interest as an early settlement fee. Refinancing tends to have lower fees in the $100-$200 range.
Can I get a refund of what I already paid?
No, any amount paid prior to settlement is not refunded when you settle the loan early.
What if I owe more than the car is worth?
If you have negative equity, the dealer can include the remaining amount owed in your new car loan. But this increases total debt so try to avoid it if possible.
Does the dealer handle all communication with the lender?
Yes, the dealer will contact the lender and handle the payment transfer so you don’t have to communicate directly.
The Bottom Line
Settling your existing car finance agreement through a dealership when purchasing a new vehicle streamlines the process considerably. The dealer handles contacting your lender, paying the settlement amount, and finalizing the paperwork. This provides convenience, speed, and simplicity. Just be aware of any early settlement fees and the minor credit impact. As long as you have all the documentation and account details, the dealer can smoothly facilitate settling your auto finance so you can focus solely on the new car.
Understanding your finance contract
First, you need to make sure you understand every clause listed in the contract. It will help you decide if going to the car dealer is a good idea and get you ready for the talks.
Go through the finance terms to see whether returning the car is an option under your contract. You might be able to get the car back if youve paid less than 50% of the total credit. You might not be able to leave if you have paid more and the amount of credit you still owe is less than 200%.
Your contract may have a voluntary termination clause. This would mean that you are allowed to return the car to the dealer without needing to pay extra. It will also depend on how much debt you still have. Usually, you can only do it if you’ve paid off more than half of the loan; if you’ve paid less, this clause probably won’t help you.
Since you will no longer pay interest as part of the car finance agreement, the lender will require compensation in the form of an early exit fee when settling car finance early. You’ll have to pay whatever the cheapest of the two is:
- 1% of outstanding finance
- 0. five percent of the total credit amount if the loan term for the car is less than twelve months.
In cases when the is less than £8,000, you may be allowed to pay the outstanding interest.
Reach out to the finance company or dealership, asking them to provide you with a car finance settlement figure. This figure includes the remaining loan amount, interest, fees, and potential early settlement charges. If you’re fine with paying this, move on to the next step.
Ending a finance deal early
For a smooth transition, go to the dealership with the loan settlement and your agreement reference number prepared. A finance settlement letter is crucial in this process, as it ensures the finance is legally settled before the sale can proceed. Ask the car dealership about the protocol and simply follow their instructions.