Most consumers think that settling back a loan early or handing it back under voluntary termination automatically ends their relationship and responsibilities with the lender. It’s common to think of this and assume that settlement also means closure. But this is exactly what leads to many people overlooking their ongoing rights, especially when making a claim for the unfair lending practices that they fall victim to. 

Simply put, early settlement doesn’t void your rights. Suppose you have been mis-sold finance, or charged any hidden commission, or even entered into an agreement without an affordability check. In that case, you can still make yourself eligible for compensation, even after years of paying it off. 

In this article, we will make a quick rundown of what early settlement means, a brief overview of the rules that protect you in cases like this, and also how to take action to reclaim money that you may have been owed.

What does early settlement mean?

Basically, early settlement means paying your loan or finance agreement earlier than the supposed end of the term, and this can be brought about in several ways:

• The consumer paid off the balance in full earlier than the end term – This may happen in cases where you decide to pay your balance on a five-year car loan within just three years. 
• Selling or trading the financed vehicle – This is when you put your car out for selling, and then use the money you got to settle whatever it is you owe. 
• Voluntary Termination – In UK law, you are allowed to end a car finance agreement after settling 50% of the total amount payable. You can see this mostly in Personal Contract Purchase (PCP) and Hire Purchase (HP) agreements.  

In all of these cases, what early settlement means is that the monthly payments have been paid out, but it doesn’t mean that the original terms are no longer relevant. In addition, even with refinanced PCP agreements and other car financing, you can still make a claim, as it doesn’t invalidate your rights too.

What are the FCA Rules on Past Agreements?

People are often confused about how their car finance agreements work when they settle their payments early. Some even assume that their rights are waived the moment their finance agreement is settled early. The only thing that gets affected in an early settlement is that you’re paying in full already, and this may mean paying an early settlement fee. However it does not affect your right to make a claim if you were mis-sold. 

The Financial Conduct Authority (FCA), tasked to regulate the UK financial industry, has remained very clear that eligibility for a claim is based on how one was sold a finance deal, and not whether a finance agreement is still active. This should be part of the mis sold-car finance check process. 

Here’s where the confusion often begins. People assume that if they no longer have an active finance agreement, they can’t complain about it. That’s not true. You can still make a claim if:

• Your lender or broker failed to explain the commission payments
• You were sold a product that was unsuitable
• You were given a finance that is not affordable 
• There were no affordability checks done, or if it did not accurately reflect what you can afford to pay
• The agreement was made between 2007 and January 2021

Let’s say you bought a car on a PCP deal in 2017, and had it for a five-year term, but were able to pay it off in 2020, which means you’ve settled your fee already. And then right after, you discovered that your broker received a large commission from the lender without telling you, then you can make a claim for the hidden commission.  

But is it illegal for dealerships to earn commission on car finance, specifically for agreements made between 2007 and January 2021? Not necessarily, however, you must inform your customers of the commission, how much it is, and whether it affects your pricing. 

When Can You Still Claim?

Your finance may be long behind you, but it doesn’t mean you can’t make a claim especially if you were put under these conditions:

1. Hidden Commission

Undisclosed commission has been one of the main reasons for why mis-selling claims occurs. This has been happening more than often on different car financing cases and was only brought to light in 2021, after the FCA found out how much it has been detrimental to giving deals that suit buyers financially. In this setup, car dealers and finance brokers are allowed to receive larger commissions from lenders, stemming from the interest rate which is also a variable they can manipulate. Some cases even show commission to be as high as 70% of the interest that was paid. 

1. Unfair Terms

Some mis-selling in car finance agreements is brought about by unbalanced or overly complex causes. If your agreement has vague, misleading, or one-sided terms which contributed to its complexity and that have also become a reason why you never understood it right the first place, then it could mean a breach of consumer protection laws. Not being informed about the penalties that come with early settlement is a red flag as well. 

1. Lack of Affordability Checks

Affordability checks on car financing are crucial, as they will dictate whether you can afford the loan you are getting or not. The loan you’re taking out should be considered your income, expenses and financial obligations to assess whether the new financial responsibility you’re signing up for is one that you can really afford in the first place. Some cases where a lack of affordability check can be proven are when/if:

• You are given multiple loans even with a poor credit standing
• Your monthly repayments aren’t affordable or are even more expensive than your income
• There was no proper income verification done

Time Limits and Exceptions

Now, the question is how far back can you be allowed to consider an unfair car financing incident for a claim? Typically, financial claims in the UK are subject to a “six-year rule”, which means you’re given up to six years from the date it was issued, or when the finance was agreed to raise your complaint to the lender. 

But you also need to be mindful of the “three years from awareness” rule, which means that if you only found out about the mis-selling in your finance agreement now, then you have three years from when you first learned about it to jumpstart your claim. 

Now, this only concludes that you can still make a claim, even if your agreement has been settled more than six years ago, and even if the agreement is closed now, you can still be eligible if you’re able to prove that you just learned or discovered about the issue now. 

This exception is especially relevant as news of mis-selling and secret commissions continues to surface. Many consumers are only just becoming aware that they may have been misled.

What You’ll Need to Submit a Claim

To submit your claim, here are the following documents you will need to have:

1. Your finance agreement, which includes the contract signed at the start of the loan
2. An early settlement or voluntary termination letter to prove that the loan was paid off early or earlier than the agreed span
3. Proof of Payments, such as a bank statement or payment history to show how much you paid and when. Typically, in an early settlement, this will include a bigger payment amount at the end. 
4. Any proof of communication with the lender, which can either be emails or letters, relating to the loan, especially around the time it was agreed upon or settled. 

If you’re worried, you don’t have a copy of any of these anymore, because simply put, many people lose track of old paperwork. You can tap specialists like Reclaim247 to help you in recovering these missing documents or reconstruct a claim that is based on the available information.

Conclusion

Not because you settled early means your rights end there. In fact, there are many instances of claims that are only found out or escalated years after the agreement ended. It may be brought about by undisclosed commissions, unfair terms and affordability features which are key issues to say a car finance was mis-sold. It’s not when or how it ended, but rather how the mis-selling happened. 

Now, there are more powerful financial watchdogs whose job is mainly about cracking down on these malpractices. If you ever had a car finance, you might as well check if you have been mis-sold, as you may be entitled to a refund. Again, not because you choose to settle early, means you’re waiving your consumer rights, especially when it comes to making a claim.