Early Settlement
Your right to settle vehicle finance early in South Africa, how settlement figures work and when it pays to do it.
Under the National Credit Act you are entitled to settle your vehicle finance early. You request a settlement figure from the bank, which is the outstanding capital plus interest and fees up to the settlement date. On most consumer vehicle agreements there is no penalty for early settlement, though it is worth confirming in your contract. Paying extra each month has the same effect on a smaller scale.
Settling early saves the interest you would otherwise have paid over the remaining term, which is most valuable in the early years when the balance is highest. Common triggers are a windfall, a trade-in, or simply wanting the car unencumbered. Ask for the figure in writing and check that the release of the bank's title interest follows once you have paid.
Early Settlement — questions
The questions people ask about early settlement, answered plainly.
Can I settle my car finance early?
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Yes. The National Credit Act gives you the right to settle a credit agreement at any time. Request a settlement quote from the bank, which will be valid for a short period, pay it, and the bank releases its interest in the vehicle. Check your agreement for any conditions.
How is a settlement figure calculated?
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It is the outstanding capital balance plus interest and fees accrued to the settlement date. Because interest is charged on the outstanding balance, settling earlier in the term saves more. The bank issues the figure on request; it is usually valid for a limited number of days.
Is there a penalty for settling early?
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On most standard consumer vehicle finance agreements, no. Some agreements, particularly larger or fixed-rate ones, may include an early-termination charge, so read the contract or ask the bank before you decide. The interest saved almost always outweighs any charge.
Should I pay extra on my car loan or save the money?
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If your loan rate is higher than what your savings earn after tax, paying extra on the car usually wins, provided you keep an emergency fund. Extra payments reduce the capital, which reduces future interest and shortens the term. Confirm with your bank how additional payments are applied.
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