Can I voluntarily terminate my car finance early?

  • Ending an agreement early with Voluntary Termination (VT)
  • You must have paid at least half of the balance
  • VT shouldn’t negatively affect your credit rating

how to get out of a PCP early

Hitting a sticky patch in your life where you might not be earning money is becoming more common in the world we live in. If you can no longer afford to pay your car finance agreement, or the car no longer suits your needs, fear not – you can cancel the agreement and hand it back.

Read on to find out how you can return your car early – all without being stung with additional charges or ending up in arrears, with a decimated credit rating.

Voluntary Termination: how to return a car early

If you’re having issues keeping up your monthly payments – or your situation has drastically changed – it is possible to end several types of car finance, including Personal Contract Purchase (PCP) or Hire Purchase (HP) contracts. These can be ended early through a process called Voluntary Termination (VT).

Generally, it's a much wiser move than simply not paying your agreements. Falling into arrears damages your credit score, making it harder for you to be accepted for finance in the future.

Handover of car keys

Voluntary Termination rights mean that as long as you have paid more than half of the balance due, including interest and charges owed – or make up the difference to that 50% – you can return the vehicle to the finance company.

You can also terminate a regulated HP agreement in a similar way. Be aware, however, that you won’t get anything back if you’ve paid more than 50% of the total due.

If the car is worth more than the remaining payments, you could be better off paying a settlement figure to buy the car and then selling it – provided you can access the funds to do this.

As with any PCP scheme, if the car has any damage or has exceeded the agreed mileage limit – which will be worked out pro rata depending on how many monthly payments you’ve made – the finance company may chase you for additional fines.

Early repayment option lets you keep or sell the car

It is also possible to pay off a PCP deal early. You’ll need to get a settlement figure from the finance provider, which shows how much you’ll have to pay to tie up the contract early. This leaves you with two options – pay the settlement figure and keep running the car, or sell it.

The former could be wise if the settlement figure is less than the total of the remaining monthly payments. Meanwhile, selling the car on might make sense if you are strapped for cash, but can get the funds together to buy it and sell it on for more than the settlement figure.

Avoid going into arrears: renegotiate finance instead

Whatever your financial situation, it is always a good idea to avoid falling behind with payments. It is much better to opt for Voluntary Termination or Early Repayment than chalking up missed monthly payments, as these can harm your credit score and make it harder to borrow money in future.

Man stands awkwardly looking at car in dealership

Although Voluntary Termination will appear on your credit file, it should make little or no difference to your ability to secure finance in the future. That makes Voluntary Termination a much more sensible option than struggling to keep up with payments.

Do bear in mind, however, that if you consistently use VT to return cars early, lenders might be hesitant to accept you for future finance – as receiving a car back ahead of time can cause them additional unforeseen costs.

Early Termination of leasing

The rules are different for (Personal Contract Hire) PCH leasing. Handing back a lease car early can be much more difficult – and costly – as these are designed not to be broken and do not offer the flexibility built into PCP contracts.

Whether Early Termination is available with PCH is at the discretion of the lender and there could be additional issues if you’ve fallen behind with payments. Some lenders might insist that you still owe the full value of outstanding payments – whether you hand the car back or not – while others might charge you half the remaining monthly rentals plus any arrears.

Bear in mind that handing a lease car back early could see you carless and still liable for a substantial amount in monthly rentals, penalties and fees.

2019 Vauxhall Corsa dynamic

Should you find yourself stuck with a lease car you can’t afford – or one that simply no longer meets your needs – there are a few options. First off, talk to the leasing company to see if you can refinance or lengthen the contract to drop monthly payments within reach. Secondly, you can ask whether there’s any way you can return the car or swap it with minimal fees.

If that doesn’t work, a number of websites have sprung up where you can find another driver to take over your lease. Some leasing companies might frown upon this or forbid you from effectively sub-letting the car, but if all else fails, this could be worth considering.

Want to find out more about car finance? Take a look at the links below:

Further reading