Can I buy a car on finance and then pay it off?

A reader has been offered a better deal buying on finance than with cash, so can he buy on finance and then immediately pay it off?...

Jaguar F-Type Coupé

I'm looking to buy a Jaguar F-Type. I've been given a cash price and a finance price, and the finance price is £6000 less than the cash price. Am I legally allowed to take out the finance package and then pay it off straight away? Also, please can you tell me why there is such as big difference in the prices?

John Newby

What Car? says…

If you’re buying on hire purchase (HP) finance, you’re allowed to make early payments to repay the loan. If the finance is a personal contract purchase (PCP) deal, you’re also allowed to settle the loan early, but the terms and conditions for doing so vary from one finance company to another, so it’s important that you read the small print of the finance agreement before signing up for it to ensure any early settlement fees don’t eradicate the savings from taking out finance. 

Even if you do have the cash to buy a car outright, it's actually beneficial to get it on finance or pay for at least £100 of it on a credit card; doing so gives you protection under Section 75 of the Consumer Credit Act, which covers all transactions from £100 to £30,000. 

Buying on HP or PCP gives you added protection if the car develops a fault too, because the finance provider is jointly liable along with the car maker to fix the problem and refund payments where appropriate.

Although you’d expect buying a new car with cash to be cheaper than getting it on finance, because you don’t have to pay interest on a cash purchase, doing so means you miss out on the incentives that are frequently offered with finance deals. 

Many new car PCP deals are offered with a manufacturer ‘deposit contribution’ of at least £1000 and a lower interest rate than other forms of finance. In fact, at present, around 18% of new car PCP deals have a 0% interest rate. Dealers are also likely to offer bigger discounts on cars bought using their finance, because they and the car company get greater profits from this. It also gives them more opportunity to keep in contact with you for servicing and to offer you a new car in the future. 

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