Understanding term ‘balance’ is key to ensuring that you make informed financial decisions and avoid unexpected surprises.
Understanding the balance in car finance
The balance in car finance refers to the amount you still owe on the car loan or finance agreement. It’s what’s left to be paid after your deposit, fees, and previous instalments.
This balance can vary depending on the type of finance agreement you’ve entered, whether it’s hire purchase (HP), personal contract purchase (PCP), or a car loan.
How it works in different types of finance
In hire purchase agreements, the balance reduces with each monthly payment until it reaches zero at the end of the term, at which point the car is yours.
For personal contract purchase agreements, the balance you owe includes monthly payments but also a larger final payment known as the balloon payment if you want to keep the car at the end of the term.
If you’ve taken out a traditional car loan, the balance is simply the remaining amount on your loan, and once you’ve paid it all, the car becomes yours without any further conditions.
Why is knowing your balance important?
Being aware of your car finance balance allows you to plan your finances effectively. It helps you understand how much longer you’ll be making payments and how much of the car you still need to pay off. This can be particularly important if you’re thinking of refinancing, trading in, or paying off your agreement early.
Knowing your balance also helps you calculate the total cost of ownership and manage your budget, ensuring you aren’t taken by surprise if there’s a large amount still due.
Additionally, if you want to sell or part-exchange your car before your agreement ends, your balance determines how much you need to pay to clear your finance.
How to check your balance
Keeping track of your car finance balance is easy. Most finance providers allow you to log in to your account online or via an app to view your current balance, payment history, and any upcoming payments. You can also request a settlement figure, which tells you how much you’d need to pay to clear your debt completely.
Summing it up
Understanding what balance means in car finance is crucial to managing your payments and avoiding any surprises.
Whether you’re halfway through your agreement or nearing the end, knowing where you stand with your balance can help you plan for the future, whether that’s paying off your loan or trading in for a new vehicle.
By keeping track of your balance, you can take control of your car finance and make decisions that fit your financial situation.
