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Voluntary Termination of Car Finance: What You Need to Know

 

If you’re struggling to afford your car finance payments, voluntary termination might be the right option for you. It gives you the legal right to end your hire purchase or personal contract purchase agreement early, as long as you’ve repaid at least half of the total amount owed.

In this guide, we explain how voluntary termination works, when you can use it, and what you need to be aware of before handing your car back.

What does voluntary termination mean?

Voluntary termination is when you choose to end your HP or PCP car finance agreement early. Under Section 99 of the Consumer Credit Act 1974, you can return the car to the finance company once you’ve repaid at least 50% of the total amount payable.

This total includes your deposit, monthly repayments, interest, and fees. If you're on a PCP agreement, the balloon payment is also part of the total cost, even though it's due at the end.

Voluntary termination can help if your finances have changed and you’re finding it hard to keep up with payments. It offers a clean break from your agreement and stops you from falling further into debt or facing repossession.

Car Key Pointing

Am I eligible to voluntarily terminate my car finance?

To voluntarily terminate your car finance, you must meet a few important conditions. You’re eligible if:

  • You’ve paid at least 50% of the total amount payable under your finance agreement. This includes the deposit, monthly payments, interest, and any fees. For PCP agreements, it also includes the final balloon payment, even if you haven’t reached that stage yet.
  • The car is in good condition, with only normal wear and tear. This means no major damage, scratches, or missing parts. If the car has excessive damage, the finance company might charge you to put it right.
  • You’re willing to return the car, along with all its documents, keys, and accessories.

If you haven’t yet paid 50%, you can still choose voluntary termination by paying the difference to reach that point. Your finance provider can tell you how much more you’d need to pay to become eligible.

What steps do I need to follow for voluntary termination?

Here’s how to voluntarily terminate your agreement:

  1. Check your balance: Review your contract to see if you’ve paid 50% of the total amount. If not, ask your lender for a settlement figure to reach that point.
  2. Inspect the car: Make sure the car is in good condition. If there’s damage beyond wear and tear, you might be charged for repairs. Some people arrange a basic service or inspection beforehand.
  3. Contact your finance provider: Let them know you want to end the agreement through voluntary termination. You can do this by phone, email, or letter. Ask them to confirm the next steps.
  4. Return the car: Your lender will tell you how to return the vehicle. You may need to drop it off at a specific location or arrange for it to be collected. Make sure to return the V5 logbook, spare key, and any service documents.
  5. Final inspection and closure: Once the car is returned, the finance provider will inspect it. If everything is in order and you’ve paid at least half the agreement, your account will be closed, and you’ll get written confirmation.

Following the process carefully helps avoid extra charges and ensures your agreement is settled properly.

Will voluntary termination affect my credit score?

Voluntary termination will be recorded on your credit file, but it shouldn’t harm your score unless you’ve missed payments beforehand.

It simply shows lenders that you used your legal right to end a finance agreement , not that you defaulted. However, some lenders might see it as a warning sign that you had financial difficulties.

If you’re planning to apply for car finance or other loans in the near future, it’s worth considering how this might affect your chances and shopping around for lenders who consider all circumstances.

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Can I voluntarily terminate a PCP agreement?

Yes, voluntary termination also applies to PCP agreements. The same 50% rule applies, but with one important difference: the final balloon payment is included in that calculation.

This means you need to have repaid half of the total cost, including the balloon payment, not just the monthly instalments. If you haven’t paid that much yet, you can make an extra payment to reach the required amount.

As with HP, the car must be in good condition with no damage beyond normal wear and tear. If you meet the criteria, you can hand the car back with nothing more to pay.

How long does the voluntary termination process take?

Voluntary termination usually takes around 1 to 3 weeks, but this can vary depending on your lender.

Once you inform them of your decision, they’ll give you instructions for returning the car. After the car is collected or dropped off, they will inspect it and check your payment history. If all is in order, they’ll confirm that your agreement has ended.

Delays can happen if the car needs extra checks or if you haven’t paid the required 50%. To avoid this, make sure you’ve met the conditions and returned everything on time.

What support is available if I’m unsure?

If you’re struggling with your payments and not sure whether voluntary termination is right for you, there is help available.

Start by speaking to your finance provider. They can explain your options clearly and let you know what the voluntary termination process involves for your specific agreement. You may also be able to explore alternatives like voluntary surrender, refinancing, or a temporary payment break.

You can also talk to a financial advisor or reach out to free money advice services if you need independent guidance.

To learn more about voluntary surrender and how it differs, see our full guide: Voluntary surrender of car finance. Or feel free to contact our friendly Customer Support Team using the freephone number at the top of this page.

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