Under Section 99 of the Consumer Credit Act 1974, you have the legal right to voluntary termination. This is when you end your car finance agreement early and hand the car back to the lender. You’ll need to pay 50% of the total amount payable (including the balloon payment in a PCP). If you’ve already made payments but not yet reached this point, you’ll need to pay the difference.
What is my legal right to voluntary termination?
No matter whether you have a Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement, you’ll have the right to voluntary termination written into your agreement.
This right falls under Section 99 of the Consumer Credit Act 1974.
Look out for this clause:
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.
How does voluntary termination work?
If you decide to exercise your right to voluntary termination, you’ll need to let the lender know first.
What happens next will depend on how far along you are in your agreement:
- If you’ve already repaid 50% of the total amount payable, you can simply return the car to the lender and walk away.
- If you’ve not yet paid 50% of the total amount payable, you can still voluntarily terminate but you will need to pay the difference first.
Keep in mind that extra charges might apply if the car has been damaged or you’ve gone over your annual mileage restriction in a PCP.
What type of car finance can you voluntarily terminate?
You’re entitled to voluntary termination:
- HP
- PCP
- Conditional Sale
You can’t usually voluntarily terminate a lease or a personal loan.
Why might you need to use voluntary termination?
There are many reasons why you might need to end your car finance agreement early including:
Affordability
If your circumstances have changed, you’ve lost your job or you’re struggling to cope with the cost of living, you might not be able to afford your monthly repayments and need to use voluntary termination.
Negative equity
In some cases, your car could lose value rapidly. If you’ve repaid 50% of your total loan but your car has depreciated so it’s worth less than the amount still outstanding, you might be better off using voluntary termination to end your agreement early.
Change of car
With car finance agreements lasting up to six years, your personal circumstances might have changed, and your pride and joy might not be fit for purpose anymore. You might be keen to end your contract early so you can start looking for a new car straightaway.
Can I voluntarily terminate a used car finance agreement?
You have the right to voluntary termination with both brand-new cars and used vehicles.
How should I inform my lender that I want to voluntarily terminate my agreement?
You can give your lender a call or email to let them know you want to use voluntary termination, but it’s always best to follow up with a letter. Send it to the address listed on your contract and ask for proof of postage. Make sure you make it clear you want to voluntarily terminate, not surrender.
What does total amount payable mean in voluntary termination?
With HP, the total amount payable is the total amount borrowed, the interest due on the loan, and any admin charges.
With PCP, the total amount payable will be the amount borrowed, the interest due, any admin charges, and the final balloon payment that you’d need to pay to become the car’s legal owner.
When you voluntarily terminate your car finance, you need to have paid 50% of the total amount payable.
How are damages dealt with when you voluntarily terminate car finance?
While normal wear and tear is acceptable, any damage beyond a few scrapes and scratches might incur extra charges.
Can you be charged for excess mileage with voluntary termination?
If you have a PCP agreement with an annual mileage limit, you may face penalty charges if you give up your car for voluntary termination with more miles on the clock than originally agreed.
What is voluntary surrender?
A voluntary surrender and voluntary termination aren’t the same thing. With voluntary surrender, you can return the car to the lender, but you’ll still be responsible for paying the outstanding finance. The lender will take your car and try and sell it at auction. If the car sells for more than your remaining balance, you can walk away. However, if it sells for less, you’ll need to make up the difference. Voluntary surrender can also harm your credit score.
What is repossession?
Repossession is when the lender takes back your car because you’ve fallen behind with your repayments. This is usually the last resort as the lender would rather work with you to set up a new payment plan or alternative solution so that they aren’t forced to repossess. Even if your car is repossessed, once it’s sold at auction, you’ll owe the outstanding finance and bailiff fees, your credit score will also be negatively impacted.
Will voluntary termination affect my credit score?
While voluntary termination shouldn’t impact your credit score, it will be marked on your credit report and could make it more difficult for you to find finance in the future if you use it more than once.
When will you reach the 50% point in a car finance agreement?
In an HP agreement, you’ll usually have paid 50% of the total amount payable roughly halfway through your loan term. You may reach the threshold earlier if you put a large deposit down upfront. With PCP, it’ll take longer to reach the 50% point as the balloon payment is deferred to the end of your agreement.