What is a Voluntary Termination (VT)?

Ending your car finance by Voluntary Termination (VT) is your legal right under the Consumer Credit Act. You can terminate a new or used car finance contract early and return the vehicle. You must have paid half of the Total Amount Payable to end the VT.

The cost of living is rising faster than it has for decades, putting a massive strain on the population’s financial circumstances. Many people seek ways to reduce monthly payments, including car finance payments. A Voluntary Termination might be a good option.

Our article will inform you about how Voluntary Termination works and the do’s and don’ts of the Voluntary Termination process, especially if you have money problems (VT is better than having a car finance company take repossession.)

All HP contracts, including PCP, have the same provisions letting you terminate the agreement and hand back the car. Your rights are below in Section 99 of the Consumer Credit Act 1974.

The agreement you received when you bought the car will have the following clause:

TERMINATION: YOUR RIGHTS
You have a right to end this Agreement. To do so, you should write to the person you make your repayments to. They will then be entitled to the return of the Goods and to half the amount payable under the agreement, that is [the exact figure for your contract]. If you have already paid at least this amount plus any overdue instalments and have taken reasonable care of the goods, you will not have to pay any more.

A Voluntary Termination is a statutory right for everyone in an HP, Conditional Sale or PCP Agreement. It states the borrower can terminate the agreement and only pay half the total amount owed. VT is in legislation, and it does not matter what your finance agreement says.

• When you repay half the figure and have no missed payments, you can return the car and will not owe any money. The lender will not get any money back if you have paid more than 50%.
• When you pay back more than 50% but have some arrears – you don’t have to pay the missed payments before you can Terminate the vehicle. However, you will still owe that money to the lender.
• If you have yet to pay 50% of the agreement but can pay the additional money, you can still Voluntary Terminate.

Return the car complying with the above, and you’ll be able to terminate the car finance agreement early without making any further payment.

Voluntary Termination allows you to end the following types of car finance.

• Hire Purchase (HP).
• Personal Contract Purchase (PCP).
• Conditional Sale – Very similar to an HP.

Leasing – You cannot use a VT on a car leasing contract.

A personal loan from a bank is usually unsecured or not linked to the car. You are the vehicle’s legal owner, and the bank cannot take the car if you fail to repay the loan.

These are the most common reasons for a Voluntary Termination

Affordability

Affordability – You are struggling financially and can no longer afford the monthly repayments on the car finance contract. If you consider using a VT, before you do, get advice from an organisation such as the National Debtline. You may have additional options for a Voluntary Termination, such as an affordability complaint.

Negative Equity

Negative equity – You expect a car to depreciate over the length of the contract. However, if you are at the halfway point and the vehicle has a market value of less than what remains outstanding. You could end the contract early, giving the car back to the finance company.

Change the Car

Car finance agreements are usually for three to five years, a lot can happen in that time, and the vehicle may no longer be practical. You can change the car but check out first if it’s better to use a VT or part exchange.

The procedure for a Voluntary Termination is the same, whatever the reason you may have.

Yes. You can Voluntary Terminate to return a vehicle on an HP or PCP agreement to finance companies and walk away, provided you comply with certain conditions, whether a new car or a used car when you bought it. The type of car is irrelevant.

Be very careful when you terminate your agreement. You don’t want mistakes that mean your VT gets changed to a Voluntary Surrender or Voluntary Repossession (same thing).

• Inform the lender with a signed letter when you Voluntary Terminate. Tell them you have terminated your contract. Send to the finance company address listed in the agreement – by recorded delivery.
• Take a copy of the letter and your proof of postage.
• Don’t inform the lender by phone. Some finance companies most likely treat a phone call as a Voluntary Surrender of your car and not a Voluntary Termination of the agreement, and you don’t want that to happen.

Be very careful. If the lender requests you sign anything. Don’t.

In all correspondence by phone or written, refer to terminate my agreement or Voluntary Termination.

You must not agree to early termination by Surrender or allow repossession of the vehicle.

The Total Amount Payable on an HP car finance agreement is the entire cost of the car plus interest and arrangement fees on the amount you borrow. Any initial payment, such as a deposit or part exchange, is also included in the calculation.

FOR a PCP, the Total Amount Payable is slightly different than HP because about a third of the car’s value (the balloon) is not due until the end of the contract. When a contract proceeds to its usual conclusion, you can pay the balloon and keep the car or not pay and give the vehicle back. However, when you Voluntarily Terminate, the Total Amount Payable is the entire agreement value, including the balloon payment.

NOTE: 50% (or half) of the Total Amount Payable is what you need to have paid to execute a Voluntary Termination. NOT 50% of the length of the contract nor 50% of the amount you initially borrowed.

The VT states there must be no damages above normal wear and tear – but there is no definition, and lenders may try and charge for damages. But, there is no legal guidance for charges.

Most finance companies refer to the  BVRLA (British Vehicle Rental & Leasing Association) Fair Wear and Tear guidance. However, even though the contract may stipulate the BVRLA, it’s probably not legally enforceable. Ultimately it comes down to negotiation.

If you have an unaffordable loan, you can complain and ask for interest to be removed from your balance.

Most things about a Voluntary Termination are clear-cut. Excess mileage isn’t.

For an HP agreement, mileage VT is not usually an issue.

However, a PCP is different. The problem is the agreed mileage for the contract duration partly dictates the monthly payments and the GMFV. Suppose a PCP vehicle is subject to a Voluntary Termination but has much higher mileage than agreed. In that case, the lender will likely want additional fees to cover the further depreciation of the vehicle.

Cases have gone to both the Financial Ombudsman Service and even to trial. Opinions going in favour of both lenders and customers.

Lenders don’t like Voluntary Termination. Due to the maximum 50% limit, they usually lose the finance company money.

Some lenders might, in error or, more likely, on purpose, mistake your Voluntary Termination as the dreaded Voluntary Surrender (occasionally called a Voluntary Possession).

What Is a Voluntary Surrender?

Be very careful when you return a vehicle with a Voluntary Termination. A Voluntary Termination is NOT the same as a Voluntary Surrender. You must avoid a Voluntary Surrender at all costs.

A Voluntary Surrender is the nightmare scenario of car financing! You return the car but still owe whatever is outstanding on the car finance contract. It’s a mess finance companies sell the vehicle at auction, possibly only at a fraction of the market value. You’ll also get charges for collecting and handling the car. They will still chase you for the remaining balance with all the associated costs. Your credit score will suffer considerably.

What Is Repossession?

Repossession happens when a lender takes back your car because you fail to repay your car finance agreement. Nearly all car loans use the vehicle as security.

Lenders prefer that customers approach them if they are struggling financially and will try to find a solution to help. However, many borrowers fail to reply to lenders’ attempts to communicate.

Repossession is a last resort and causes stress on both sides, particularly the customer.

After the repossession, you’ll still owe the remaining balance, the vehicle sold at a loss, more charges, bailiff fees and a hammered credit score.

No. A Voluntary Termination is exercising your legal right under the Consumer Credit Act to terminate your car finance contract. It will not affect your credit score.

Every termination of a finance contract gets an entry on your credit file, including a Voluntary Termination.

The reason for ending the agreement does not go on the credit report. So, don’t allow a dealer or lender to reference your credit history as a reason not to pursue a Voluntary Termination.

Other lenders can see on your credit report if you terminate a contract early, but they won’t know the reason why. There is no reason why a Voluntary Termination will stop finance applications with other car finance companies.

Only your finance company and associated companies know why you ended the contract early. Many customers take out future finance with the same company.

When during a car finance agreement have you repaid half of the Total Agreement Value?

You pay for An HP car finance agreement with equal monthly repayments over an agreed period, usually between 3 and 5 years. You’ll have paid back  50% of the Total Agreement Value at the midpoint of the contract. You’d get there sooner if you had paid a deposit at the contract’s start.

The same scenario applies to a PCP. However, you won’t have paid 50% until much later in the contract, as a large chunk of the Total Agreement Value is deferred as an option to purchase at the contract’s end.

When is the halfway point allowing you to terminate a car finance agreement?

In a PCP car finance agreement, you are unlikely to reach the point of a Voluntary Termination until you near the end of the contract. Why? Because with a PCP, your monthly repayments only pay back the amount, the vehicle will depreciate. The lender will still demand the amount you still owe to reach the 50% mark, which could be substantial depending on what month you are at during the PCP.

This example demonstrates the amount repaid at the halfway point of a 48-month PCP. And how much more needs to be paid to end the contract via a Voluntary Termination.

• The total value of the vehicle is £15000.
• Total repayment with Interest is £17,000.
• Monthly repayments are £225 for a 48-month contract
• The GMFV is £7,000.
• Halfway through 24 monthly repayments at £225 amount to £5,400.
• The amount required to reach the minimum requirement of 50% is £3,100.

With an HP, you’ll have repaid about half the Total Amount Payable when you reach the midway point. You make equal monthly payments throughout the contract that cover the vehicle’s entire value. That means you can execute the Voluntary Termination much sooner than you could on a PCP.  

Suppose you have already gone past the midpoint mark of your HP and paid more than 50%. In that case, you can Voluntarily Terminate the contract, but you won’t get a  refund.