Voluntary Termination: How to Hand Back a Car on Finance

What Voluntary Termination Is

Voluntary termination is your right to end a regulated hire purchase or conditional sale agreement early and hand the car back. It comes from section 99 of the Consumer Credit Act 1974.

You can use it at any time before the final payment falls due. You end the agreement by giving notice to the company you pay. The Act does not ask you for a reason.

Your agreement should explain how and when you can end it under section 99, and the most you would have to pay.

Does It Apply to PCP?

Usually, yes. The FCA describes PCP as a form of hire purchase. Check the heading on your agreement. It should say if it is a hire purchase or conditional sale agreement regulated by the Consumer Credit Act 1974.

With PCP, the optional final payment counts as part of the total amount payable. So it is included when you work out half.

The Half Rule

If you have already paid half of the total amount payable, you can hand the car back and pay nothing more because you ended the agreement. The total amount payable is on your agreement. It includes your deposit, the interest and any final payment.

If you have paid less than half, you must pay the difference to bring it up to half, unless your agreement asks for less. For example, if the total amount payable is £20,000, half is £10,000. If you have paid £8,000, including your deposit, you would owe £2,000.

You do not get anything back if you have paid more than half. Payments that were already due before you ended the agreement still have to be paid.

The Car's Condition

You must have taken reasonable care of the car. If you have not, the finance company can charge you for the damage on top of the half.

MoneyHelper says fair wear and tear is acceptable, but you will be charged for repairs to things like broken wing mirrors or larger scratches. It also says the finance company cannot charge you a penalty for extra miles if you have taken reasonable care of the car.

The Financial Ombudsman Service looks at each damage charge to decide if it is fair and reasonable, and in proportion to the repair needed.

How to Give Notice

Your notice must be in writing. MoneyHelper says to tell the finance company by letter or email and keep a copy.

Give your name and address, your agreement number, the make, model and registration of the car, and say you are ending the agreement under section 99 of the Consumer Credit Act 1974. Ask the finance company to confirm the agreement has ended, what you owe, if anything, and when it will collect the car.

Once the agreement has ended, the car must go back to the finance company. Keep it and its keys ready for collection.

What It Does Not Cover

Voluntary termination only covers hire purchase and conditional sale agreements. It does not apply to personal contract hire or other car leases, or to a car you paid for with a personal loan.

MoneyHelper says you might have to pay off the leasing costs in full if you return a leased car early.

Your Credit File

MoneyHelper says voluntary termination will show up on your credit file, but will make little or no difference to your overall credit score. It says this is a much better route than missing payments. Using it often to return cars early can look bad on your credit file.

If You Are Struggling With Payments

FCA guidance says that where ending the agreement may be in your interests, your finance company should tell you about your right in good time. Firms must treat customers who are in arrears, or close to it, with forbearance and due consideration.

If your car is worth more than you still owe, MoneyHelper says you might be better off paying the settlement figure and then selling the car. You cannot sell it before you have paid, because until then you are not its legal owner.

If Your Finance Company Says No

Complain to the finance company first. For most complaints, it has up to 8 weeks to send its final response. If you are unhappy with that response, you can take your complaint to the Financial Ombudsman Service within 6 months. It is free.

Why Send It by Post

Your notice must be in writing. A tracked letter gives you a dated record of when it reached your finance company, and your copy shows exactly what you said.