A Guide to the Voluntary Termination of Car Finance
Ending your car finance agreement early.
Whether your financial circumstances have changed or you simply want a new car, you have the legal right to end a car finance agreement early, providing that certain conditions are met.
Here, we cover your rights, the potential costs, how you go about terminating your car finance early and its impact on your credit score.
How does the voluntary termination of car finance contracts work?
The voluntary termination (VT) of your car finance agreement is a legal right that you have in the UK, so if you can’t afford your payments, this option is available to you.
According to the Consumer Credit Act 1974, you are able to end your car finance contract early as long as the relevant conditions are met, whether it’s hire purchase (HP) or personal contract purchase (PCP).
It is what’s known as a statutory right and it must be met, meaning that companies are not able to exclude it or restrict your access to it within the terms and conditions of your car finance contract.
If you decide to voluntarily terminate your car finance contract, you are then responsible for paying off half of the Total Amount Payable as set out in your agreement. The Total Amount Payable includes the amount you borrowed plus interest.
You are able to end your car finance agreement once you’ve paid 50% of the total amount, but if you haven’t done so just yet, you can still end the agreement early by paying off the difference – this is the case for both HP and PCP deals.
It’s also important to note that you will only be able to initiate voluntary termination if there is no excessive damage to the vehicle when you return it – which essentially refers to any damage outside of general wear and tear.
Typically, as long as you have paid off 50% of the Total Amount Payable and there is no excessive damage to the vehicle, you should not have to pay anything extra to end your car finance early.
If you’ve exceeded the mileage stated in your contract, however, you will be charged for this, and your finance company may have exit fees, so just make sure you check the terms and conditions of your contract so you know where you stand.
Voluntary termination damage charges
As mentioned, you may not be able to end your car finance agreement early if there is excessive damage to the vehicle when you hand it back to the finance company.
If you give a car back that has damage outside of the fair wear and tear standards, it’s likely that you will face additional charges.
How much damage charges cost you will vary between vehicles and finance companies, but here are some examples of what a typical company may ask for:
- Some alloy wheel scratches can cost over £50
- Dented bumpers can cost over £100
- Windscreen damage or chips can cost over £20
You may also incur fees for missing items, equipment or documents, such as a V5 logbook or your car keys, which you may need to replace plus an admin charge.
Does voluntary termination of car finance affect your credit rating?
Voluntary termination of your car finance contract may appear on your credit report or file, but it’s unlikely to have an effect on your credit score, creditworthiness, or chances of being accepted for credit in the future.
But, if you decide to stop paying your car finance repayments without organising voluntary termination, you will end up in debt. This debt is likely to have a detrimental impact on your credit score, which could make it more difficult to get credit – including car finance – in the future.
It is still possible to get car finance with bad credit, but you won’t have access to the best deals and you’re likely to be hit with increased APR (interest) charges.
Read more: Car Finance FAQs
Voluntary termination is therefore a much better option than simply not making repayments and hoping the problem goes away, because it won’t.
You should always keep a keen eye on your credit score and report as it has a considerable impact on the types of offers you are able to access. There are many ways to improve your credit score, and it is a must-do if you want to get the cheapest car finance deals on the market.
Although voluntary termination does not affect your credit score, it’s important that you check your credit rating before applying for any new finance or credit agreements.
Check your credit rating today with Check My File - the multi-agency credit reporting website.
Why you might want to end your car finance early
There are two main reasons why you may want to opt for voluntary termination of your car finance contract.
Firstly, your personal or financial circumstances may have changed, leaving you unable to keep up with regular payments. If this is the case, standard voluntary termination of your car finance agreement is usually the best option.
Secondly, you may simply want to cancel your car finance because you want to get a new vehicle. The best route to take here depends on your finance agreement, as there are some circumstances where you may be better off paying the remainder of the amount you owe to take full ownership of the car and then trade it in for a new one.
Whatever your reason for wanting to end your car finance agreement early, you are legally entitled to do so as long as certain conditions are met.
Is there anything that could go wrong when handing back a car on finance?
There are some issues that could arise when you try to voluntarily terminate your car finance contract.
Reluctant finance companies
Unfortunately, there are some finance companies out there that will make life difficult for you by being unhelpful. Why? Because the bottom line is that car finance companies and manufacturers would prefer that you didn’t opt for voluntary termination.
This can make the process of voluntary termination a long and tedious one, so it’s important that you choose a reliable car finance company.
Unclear damage clauses
Vague damage clauses can cause a serious amount of hassle. They typically state that damage above normal wear and tear will be chargeable, but you may find that it fails to define what exactly ‘wear and tear’ refers to.
This can be a dangerous loophole as some car finance companies will try to claim for damage that you may deem as wear and tear, but they may define it as a consequence of unreasonable care.
It’s therefore important to keep documentation of the condition of the vehicle throughout the finance contract, using photographs as additional evidence. By taking photos just before handing back a car on finance, you have solid proof of its reasonable condition when it was last in your hands, which should help you avoid any damage charges.
Missing payments can make you ineligible
If you have previously missed payments for your car finance, certain companies may refuse your right to carry out voluntary termination.
It is crucial that you make payments in-full and on-time, even when you know you want to end your agreement, as this will help avoid any complications that could otherwise arise in the future.
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How to end your car finance early
You can apply for voluntary termination of your car finance contract any time during your agreement, but it is usually done once the driver has surpassed the half-way point of the amount owed (as there is typically then nothing extra to pay).
You simply need to inform the car finance company or dealership that you want to apply for voluntary termination in writing, which can be done via email or a signed letter.
The easiest way to do so is an email, but you can also use a voluntary termination car finance letter template to construct a well-written letter.
How long does voluntary termination take? The amount of time it takes to complete the process depends on the provider and the circumstances surrounding your voluntary termination. If you meet the requirements – i.e. if you have paid 50% of the Total Amount Payable and there are no damages to your vehicle – then the process should be done relatively quickly as you have no additional charges or fees to pay.
If your finance company makes things awkward for you, however, or if you do not meet the aforementioned criteria, you may find that the process takes slightly longer.
Do NOT mistake voluntary termination for voluntary surrender
Although they are similar phrases, be sure not to mistake voluntary termination for voluntary surrender, as they are both very different processes.
While you are only required to pay off 50% of the overall amount owed to be able to enact voluntary termination, a voluntary surrender requires you to pay off the remaining balance in-full and you will be responsible for any fees if the vehicle goes to auction.
In short, you should avoid voluntary surrender at all costs when possible.
Several stories have emerged in the past of finance companies confusing the two or misreading voluntary termination letters (either deliberately or accidentally).
In order to avoid any confusion, be sure to state clearly that you want to enact voluntary termination within your letter or email to the finance company.
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Read our Car Finance FAQs guide for more information on the popular method of paying for your new car, or head over to any of our related guides: