What is a settlement figure?
Written by
Joe Towner
Reviewed by
Amy LancashireA settlement figure is the exact amount you need to pay to clear a finance agreement in full, earlier than its scheduled end date. It's not simply your remaining monthly payments added together. Because you're ending the agreement early, you stop paying some of the future interest, so the settlement figure is usually lower than the total of the payments you had left.
Settlement figures apply to most credit agreements, including car finance (both HP and PCP) and personal loans. Here's what one includes, how to get yours, and why it might not be the number you expect.
What does a settlement figure include?
A settlement figure is worked out from a few factors:
The outstanding balance: what's left of the amount you originally borrowed.
Interest up to the settlement date: the interest owed up to the point you clear the agreement.
A rebate for future interest: a deduction for the interest you won't pay because you're settling early. This is what brings the figure below the sum of your remaining payments.
Any permitted fees: some agreements include a small admin or early settlement charge, where allowed.
If you're on PCP, the settlement figure also includes the optional final payment, known as the balloon payment or the optional final payment on PCP.
Why isn't it just my remaining payments added up?
Because you stop paying future interest when you settle early, you get a rebate for it. Under the Consumer Credit (Early Settlement) Regulations 2004, lenders use a set formula to work out that rebate, and the earlier you settle, the bigger it is.
There are two reasons the savings may be smaller than you'd hope, though. First, the rules let lenders add some extra interest when they calculate the figure. If 12 months or less remain, the lender can charge up to 28 days' interest, if more than 12 months remain, they can charge up to 58 days' interest.
Secondly, interest on car finance is front-loaded, meaning the early payments are mostly interest and you pay off the actual balance slowly at first. So settling in the first year or two often saves less than you might think, even though the figure is still lower than paying every remaining installment.
How do I get a settlement figure?
Ask your lender. You have a legal right to request a settlement figure under the Consumer Credit Act 1974, and your lender must provide it, normally free of charge. Most lenders let you request one online, by phone or in writing, and they'll usually give it to you in writing with a date it's valid until.
How long is a settlement figure valid?
Usually around 28 days. Interest keeps building up daily, so the figure only holds for a set window. If it expires before you pay, just ask for an updated one, which will be slightly higher to reflect the extra days.
When might I need a settlement figure?
You'll typically need one when you want to:
Pay off your finance early to save on future interest
Sell or part-exchange a financed car, since the finance has to be cleared as part of the sale (see our guide on selling a car that's still on finance)
Refinance onto a different agreement, often to get a lower rate
End a PCP early and pay the balloon payment to keep the car
Will settling early save me money?
Usually, yes. Clearing the agreement early means you stop paying future interest, so you generally pay less overall than you would by seeing the agreement through. Two things to check first, though. Look at whether your agreement has an early repayment charge, and remember that front-loaded interest means settling in the early months saves less than settling later on. Our guide on repaying a loan early goes into this in more detail.
Settlement Figure FAQs
There are a range of financial products available that may suit your needs. We encourage you to research your options carefully and consider seeking independent financial advice before making any decisions. This blog is for informational purposes only and does not constitute financial advice.
