What is voluntary termination?

  • How to end your car finance agreement early
  • You must have paid at least half of the balance
  • Shouldn’t negatively affect your credit rating

What is voluntary termination?

What is voluntary termination?

You have a legal right to end a car finance agreement early under the Consumer Credit Act of 1974. This is known as voluntary termination.

Navigation of this page:

> Why you might file for voluntary termination

How voluntary termination works

Risks of voluntary termination

How long does voluntary termination take?

Manufacturer voluntary termination

Early termination of leasing

What is voluntary surrender?

Why you might file for voluntary termination

The Coronavirus (COVID-19) pandemic has caused car manufacturers to adopt several offerings, including the car payment holiday scheme, to drivers in need of financial support. But if all other avenues are exhausted, there’s always voluntary termination. 

You may want to end your finance agreement early if you can no longer pay, or have a car that no longer suits your needs.

Best of all, you can do this without any additional charges or it affecting your credit rating.

How voluntary termination works

It applies to both Personal Contract Purchase (PCP) and Hire Purchase (HP) contracts. Generally it's much more sensible than simply not paying your agreements because falling into arrears can damage your credit score, which affects your likelihood of being accepted for finance in the future.

With a PCP agreement, as long as you've paid 50% of the total amount payable (including interest and charges owed) or make up the difference to that all important 50%, you can legally return the vehicle to the finance company.

HP agreements work in a similar way. However, if you've paid more than 50% of the total, you won't get anything back.

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Voluntary Termination PCP

Risks of voluntary termination

The main downsides depend on how much of the finance you've paid off. 

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 sell it – provided you can access the funds to do this.

And remember, if the car has any damage (minus fair wear and tear) or has exceeded the agreed mileage limit – which will be worked out proportionally depending on how many monthly payments you’ve made – the finance company may chase you for additional fines.

How long does voluntary termination take?

This doesn't have a short answer. It really depends on your own circumstances and how quickly the finance company deals with the process.

For a start you'll need to make sure the requirements have been met. If there's no damage to the car, no excess mileage fees to pay, and you've paid at least 50% of the total amount payable, the process should be pretty quick.

The more requirements you need to complete, the longer it takes.

Manufacturer voluntary termination

Here are links to a few popular car manufacturers' relevant websites. Assuming that you have financed through official manufacturer channels, you can log in and usually submit your application here.

Audi finance voluntary termination

BMW voluntary termination

Fiat financial services voluntary termination

Ford credit voluntary termination

Hyundai voluntary termination

Jaguar voluntary termination

Kia voluntary termination

Land Rover voluntary termination

Lexus voluntary termination

Mercedes voluntary termination

MINI voluntary termination

Nissan PCP voluntary termination

Peugeot/Citroen/DS voluntary termination

Renault finance voluntary termination

Vauxhall finance voluntary termination

Volkswagen/Audi/SEAT/Skoda/Bentley/Porsche/Cupra voluntary termination

Volvo voluntary termination

Early termination of leasing

The rules are different for leases. Handing back a PCH leasing 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.

Voluntary Termination leasing

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.

What is voluntary surrender?

Voluntary surrender differs from voluntary termination because while you give the car back, you still owe the finance company the remaining balance.

Essentially once you hand the car back it's then sold. You'll then owe them the difference between what they sell it for and how much you owed.

The Financial Ombudsman Service says lenders can be hesitant to offer this, but you're well within your rights as a consumer to ask for it.

Further reading

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