A Guide to Cancelling Car Finance
We all know how quickly circumstances can change. And a finance payment of a few hundred pounds a month or more can seem like a massive burden, even though it was affordable when you started. If you have taken out a PCP or HP deal, the length of the deal can sometimes be up to 5 years of repayments (depending on the deal of course). The good news is, there are ways of cancelling your deal:
Can I end a finance agreement early?
There are several reasons why you might want to end your car finance deal early. For example, it might be that you:
- can no longer afford the monthly payments
- don’t need the car anymore
- want to buy or lease a different car
What is Voluntary Termination?
Your contract may have a clause called ‘voluntary termination’. This means you can hand the car back and not make any additional payments, as long as you’ve paid at least 50% of the total cost, which includes interest and any other charges.
How do I qualify for VT?
If you have paid 50%, you can cancel the contract and return the car. This is called voluntary termination and is a legally binding initiative under the Consumer Credit Act 1974. If you haven’t yet paid off 50% of the money you owe on the car but still want to cancel the contract, you can make additional payments to bring you up to the halfway point. Voluntary termination shouldn’t affect your credit rating, so long as you have kept up repayments.
Cancelling after 14 Days:
The Consumer Credit Act gives you 14 days to withdraw from a credit agreement. This applies to all forms of car finance and stands whether you applied online, on phone or in person.
A 14-day cooling-off period begins when you agree to the contract to an amount at or below £25,000. For higher loan amounts, check the terms and conditions.
Can I end a car finance deal early and keep the car?
Sometimes you may want to stop the repayments but keep the car, in which case you need to ask your current lender for a settlement figure on the car and pay it off that way.
This amount will include any outstanding finance and fees plus what’s called the car’s Guaranteed Minimum Future Value (GMFV) – the amount it’s expected to be worth when your finance term ends. If you pay the settlement amount, the car will be yours and you won’t have to make any further payments.
Is Voluntary Termination different for HP and PCP?
Ending an HP agreement is similar to wrapping up a PCP deal early. If you’ve already paid back more than 50% of the total amount due, you hand the car back to a dealer in return for cancelling any future monthly payments.
However, with a HP agreement, you’ll usually reach the 50% repayment point about halfway through the agreement. You might have to pay an extra fee if there is any damage to the car beyond reasonable wear and tear.
Personal Contract Purchase:
If you have paid 50% or more of the total finance amount back to the finance company, you can use the voluntary termination clause to end your PCP agreement. But it’s important to note that you won’t necessarily have paid 50% of the finance when you get halfway through the PCP agreement.
This is because the total finance amount will include interest, fees, and the final balloon payment. The balloon payment can be quite significant. So you might have to wait until further along in the agreement to reach the point when you have paid off 50%.
What is Voluntary Surrender?
“Voluntary surrender” works in the same way with HP as it does with PCP. You can return the car and the HP company will sell it at auction, but if there’s a shortfall, you will be legally liable to pay it.
There could be extra fees and charges on top too. If you don’t pay, the HP company could hire debt collectors or take you to court… This should only be considered as a last resort!