How to get out of a car finance agreement

People’s personal finances can be quickly and suddenly impacted by a number of things. Perhaps you’ve lost your job? Maybe you’ve been ill and can no longer afford to make the repayments on your car? Have your personal circumstances changed?

In situations like these, the Consumer Credit Act 1974 is there to help you find a resolution with your finance provider. This act also helps set out options available to protect the consumer when they may no longer be able to affort the monthly payments under certain arrangements. Here, we’ll explain what your options are, depending on the type of finance you have on your vehicle.

Getting out of a car finance agreement

How you should go about ending your car finance agreement will depend on the type of product you have. Here, we’ll cover what you’ll need to do if you’ve got either a hire purchase (HP) agreement, personal contract lease (PCP) plan, personal loan, or personal contract hire (PCH) car.

Let’s take a look at each in turn:

Personal loans

Unlike the other finance methods noted here, personal loans are not secured against your car, so you won’t need to hand the car back to get out of the agreement.

If you’re struggling with the payments on a personal loan, you can choose instead to sell your vehicle and pay the loan off. This is the least complicated type of finance to get out of, since the lender has no say about what you do with your car.

Personal contract lease (PCH)

If you have a personal contract lease deal, you’ll be able to hand the car back whenever you want.

The trouble is, there’s often a fairly large penalty for doing so. It’s a good idea to call your lease company, explain to them that you’re not going to be able to keep paying for the car and find out what the early hand-back cost will be. 

You’ll need to make sure the car’s in good condition, as per your initial agreement, and that you’re within your mileage limits – but as long as all these things are okay, it’s a fairly straightforward process.  

Personal contract purchase (PCP)

You’re within your rights to get out of a PCP finance deal as long as you’ve paid off at least 50% of the overall finance amount. 

Before you get your calculator out, there’s one important thing to remember; this overall finance amount includes the otherwise optional ‘bubble’ payment you would need to make at the end of the agreement if you wanted to purchase the car. 

As such, you might find that you’ve not paid 50% of the cost until well beyond the halfway point of your repayment schedule. If this is the case for you, it might make sense to make an additional payment that takes you up to this amount. 

For example:

If the full amount to be repaid (including bubble payment, interest, and fees) is £18,000, you’ll need to have paid off at least £9,000 to get out of the agreement. If you find you’ve only paid £8,200 – you could simply make up the additional £800 yourself, allowing you to terminate the agreement.

Remember though; a PCP deal has strict conditions that relate to the condition of the car and the miles you can cover. As long as these are within the terms and conditions you agreed to – and you’ve covered at least 50% of your overall repayment, you’ll be free to walk away. 

This is covered by the Consumer Credit Act, Section 99.

Hire Purchase (HP)

The process involved with getting out of an HP deal is very similar to the process we’ve covered above for a PCP plan.

The big difference is, an HP plan pays off the full cost of the vehicle over the repayment term – so you don’t have to worry about additional bubble payments bumping up the amount you owe. 

So, as long as you’ve covered at least 50% of your overall repayment amount (usually by halfway through your repayment schedule), then you’re free to begin the voluntary termination process and walk away from the agreement.

This is covered by the Consumer Credit Act, Section 99.

What is voluntary termination?

Voluntary termination is the official name given to the processes we’ve discussed above. Be careful though – voluntary termination and voluntary surrender are very different things, but they often get discussed together when it comes to getting out of a finance agreement.

With a voluntary termination, you’re simply required to give your lender notice that you’re going to bring the agreement to an end. As long as you meet the criteria and you’ve paid 50% of more of your agreement, you’re not required to fill out any other paperwork or fulfil any other requirements.

However, voluntary surrender is very different. 

Voluntary surrender is another way of describing the ‘repossession’ process. If you stop making your payments, this is what the finance company will generally try to explore – and it can be very damaging to your credit rating. Your car will be recovered and, until it’s sold at auction, you’ll still be liable for the full amount that needs to be repaid. When the car does sell, the finance company will pay off as much of the outstanding amount as possible – before pursuing you for the rest. 

As long as you qualify for voluntary termination, your credit score shouldn’t be affected. However, if your car is voluntarily surrendered, it could have a big impact on your ability to get credit in the future.