Purchasing a car on finance is a popular method of being in control of your lifestyle and being able to drive wherever you want without spending all of your money and putting yourself in debt on a single purchase. It works by putting down a deposit, usually of 10%, and then paying off the cost of the vehicle in monthly instalments across 12, 18, 24, or even 48 months. This is known as a Personal Contract Purchase.
However, while car finance is a popular method, it doesn't always work out for everyone involved, and sometimes, you need to ask 'Can you get out of car finance early?' The good news is that yes, you can. If you are looking for tips and advice on how to undertake voluntary termination of car finance, here is everything you need to know.
Why Would You Engage In Voluntary Termination Of Car Finance?
There are several reasons why cancelling your car finance agreement early could be necessary. These can include:
- A change in circumstances
You may experience unemployment or similar scenarios that mean you can no longer afford the monthly payments for the financing.
- No longer have any need for the car
You may be gifted a brand new car, move to an area where it would cost too much to have the vehicle (such as a congested city with daily/nightly car park fees), or your partner may have a car that you will both share.
- You want a new car with a new finance deal
If you want a new car for better fuel economy or similar reasons but still have a long time to wait on completing the car finance contract, the easiest way is to cancel early.
These are the primary reasons why people will voluntarily terminate their car finance contract. Every situation is different, though, so even if your reason does not appear here, there is still a chance that voluntary termination is the best thing for you to do.
Can I Hand A Car Back On Finance?
You can end your Personal Contract Purchase (PCP), which is the most common type of financing agreement, early. Despite this, there are still specific criteria that you must meet before you can do so.
If you are seeking financed car voluntary termination, you need to have paid off 50% of the total finance amount to the company you have financed the car from. This amount includes any interest or additional fees you may be required to pay by the end of the agreement, also.
There is also the balloon payment to consider. This means a substantial bill at the end of the contract but lower monthly payments up to then. With balloon payments, it is unlikely that you will have paid off 50% of the car by the midway point in your contract.
If you have not yet paid 50% of the total finance amount, then you are still able to hand a car back on finance. If this is the case for your situation, you must make up the difference when giving the car back to the financier.
For example, if you have already paid £10,000 and the total cost of the financing agreement is £30,000, then you will need to pay a £5,000 when cancelling your agreement to hand the car back to the financing company, as this totals 50% of the complete payment.
Should you be in a position where you have already paid more than 50%, voluntary finance termination is still possible. However, you will not receive a refund for the difference between the 50% and whatever percentage you have already paid.
It’s possible you are not under a PCP contract, however, and are instead investing in Hire Purchase financing. Despite the different arrangement, the rules for escaping the contract are very much the same. The only significant difference is the absence of a balloon payment at the end of the contract.
You must also consider the reasonable care aspect of the financing agreement. Those financing their car or vehicle must demonstrate to the financing company that they have taken reasonable care of the car while they are paying off the financing costs.
Companies will include this in the contract as you do not own the car outright until the end of the contract. Should you decide not to keep the car at the end of the agreement, they want to guarantee the car is in excellent condition. Often, they will allow wear and tear, but in the case of more significant damage, you may be responsible for paying for the necessary repairs.
Will Voluntary Termination Affect My Credit Score
Your credit score is always something you need to think about when hoping to get financed on anything, whether it's something significant such as approval for a mortgage, or something such as a mobile phone contract. The same is true of car financing. Evidence of the terminated finance may show up on record during a credit check. However, it is unlikely to affect your credit score.
If you find yourself unable to keep up with payments, you may be tempted to simply stop paying them. However, unlike termination of your contract, this is almost certain to affect your credit score and could affect you being approved for loans and other financing contracts in the future. You may also experience higher APR charges later on.
With this in mind, voluntary termination is almost always the best option should you want to get out of your financing contract.
To summarise, you can undertake voluntary termination of your car finance contract. However, you must meet specific measures before being allowed to do so.
- You must have paid off 50% or more of the financing cost, or
- You must make up the difference
- You won't receive a refund if you have paid more than 50% already
- The car must be in decent condition
So, now that you know how to end a car finance agreement early, you can consider whether you are ready to research financing a car. If you already have a car on a finance agreement, whether PCP or HP, it is reassuring to know that you can cancel the contract at any time for any reason with ease and with a small penalty.