What are my financial obligations if I cancel a contract?
When you sign a finance agreement of any sort, you are signing a legally binding contract to pay the finance company a certain amount every month for a certain number of months. If you want or need to get out of that commitment, you are breaking a legally binding contract and there are consequences.
Usually, that means that the finance company will agree to let you out of your contract if you pay some kind of penalty fee. Depending on the type of finance, that fee may be quite small or quite large. So before you can even think about your next car, you may have to pay a fee to get rid of your current one.
Different finance products work in different ways, and there are significant differences if you want to cancel your contract early.
On a purchase product (like a Personal Contract Purchase or Hire Purchase) or a personal loan, if you want to cancel the agreement then you will have to settle the outstanding balance still owed. If you have borrowed the money over four years but want to cancel the agreement after three, you will basically have a years’ worth of payments outstanding that need to be paid off.
The good news is that on these sorts of products, your settlement figure will be reduced somewhat because you will save money on interest. If you have been paying interest on four years’ worth of borrowing but are settling the agreement after three years, you will have paid more interest than you needed to, and the reduction will be taken off what you owe.
Should I sell my car privately or part-exchange it?
Giving your current car to the dealership as a part-exchange on your new car is certainly the most convenient way of selling it, with the dealer will also pay off any finance still owing. The downside is that you will usually get less for your car than you would probably get by selling it yourself.