If you have a car finance deal and have had a change of circumstances, then there are ways to end your agreement early. In this article, we will explore whether you can give your car back to the finance company. We’ll take a look at the different types of finance and what conditions need to be met.
Personal Contract Purchase (PCP)
If you have taken out a PCP but want to give your car back to the finance company, then there is a way. It is called ‘voluntary termination’.
Basically, under UK law, you have the right to voluntarily end your PCP agreement. But there are some conditions that need to be met first.
In order to end your PCP agreement early, you need to have paid 50% of the total finance amount back to the finance company.
The important things to note are:
- The total finance amount will include any interest and fees you are required to pay.
- It also includes the balloon payment. Typically, at the end of a PCP, if you want to own the car, you will need to make what is known as a ‘balloon payment’.
- You will need to have taken reasonable care of the car. So no damage other than normal wear and tear.
Because the balloon payment is included in the total finance amount, this means that you probably won’t have paid the 50% repayment figure by the time you’re halfway through your PCP term.
If you have yet to reach the 50% repayment amount, then you have the option to make up the difference in order to give your car back early.
On the flip side, if you have already sailed past the 50% mark, then you can easily apply for voluntary termination. However, you won’t get any of your money back.
Hire Purchase (HP)
Voluntary termination with an HP agreement is very similar to the process with a PCP. The main difference is that you don’t need to worry about a balloon payment.
You can voluntarily terminate the agreement if you have repaid 50% of the total finance amount. Due to the lack of balloon payment, this is likely to be around the halfway mark of your repayment schedule.
If you haven’t quite reached the 50% mark, then you can top up the difference in order to get out of your agreement early. The same rules apply in that you need to hand the car back in good condition.
Voluntary termination and your credit score
There are lots of factors to consider if you are thinking about giving your car back to the finance company. One of these is what it will do to your credit score.
The good news is that while voluntary termination of a car finance agreement is likely to show up on your credit report, it is unlikely to affect your score. This is because it is you showing you are being responsible and reducing your borrowing where necessary.
If you are struggling to keep up with your monthly car payments, then it’s important to make sure you do not default on them. As soon as you recognise that you are having difficulty affording the monthly cost, contact your car finance provider.
Try to avoid just stopping your payments as that will result in you falling into arrears. This could be very harmful to your credit score.
You could eventually end up in a situation whereby the finance company will have your car recovered and sold at auction. As part of this, you could be liable for the logistical costs of the sale. And if the car doesn’t sell for the full amount, you’ll have to pay the outstanding balance. This is known as ‘voluntary surrender’.