You are able to cancel car finance agreements earlier if they are a particular type and if UK law allows it. This process goes by the name of voluntary termination.
Knowing Your Rights
You can view all of the circumstances surrounding a voluntary termination of a PCP or HP agreement by referring to the Consumer Credit Act 1974, Section 99. This covers used and new cars. Having this law in place helps to protect anyone who has a finance agreement but then finds themselves unable to make their payments on time each month.
There are a number of different reasons why you are struggling with a car payment. From losing your job or just a change in financial circumstances, finding the money to pay for a car finance agreement at the end of the month can be hard. The law mentioned above covers HP and PCP agreements but each one works differently. Let’s take a look at each one a bit more in-depth to see how they work.
PCP Finance Agreement Hand Back Guide
Known as a personal contract purchase agreement, or PCP, is the most popular type of car finance you can get today. When you opt for this agreement you are asked to pay a deposit upfront, then spread the rest of the payments over a number of months. Once these months have elapsed and you’ve made all of the payments you are left with two options depending on whether you want to keep the car or not.
If you are interested in keeping the car, you have to pay out a balloon payment to take full ownership of the car. If you don’t want to keep the car, you simply hand it back to the dealer and you can choose to buy another vehicle or enter into another PCP agreement.
Ending A PCP Agreement Early
If you’ve paid back a total of 50% of the finance amount back to the company then you can end your PCP agreement early. This total amount will include any fees and interest you’ve accrued over the contract period as well. More importantly, this amount also includes the balloon payment too. This is a vital thing to note because, by the mid-way point of the agreement with the balloon payment added on top, it’s not realistic to have paid back 50% of the total fee.
To put it simply, you can’t get half or less than halfway with the monthly payments and then decide to opt-out of your PCP without taking the balloon payment into account.
If you find that you have paid the 50% of the amount, the car has to be in good condition too. This means there can’t be any damages past the normal, everyday wear and tear. Ticking all of these off your checklist means you can end the agreement early.
HP Finance Agreement – Can You Hand You Car Back?
A hire purchase agreement is another popular option for car finance in the UK. When you enter into a HP agreement, you normally have to pay around 10% of the finance amount as an initial deposit, followed by monthly repayments. Once you’ve finished paying all of these monthly bills, the car ownership then becomes yours. There is no surprise balloon payment at the end either.
Ending A HP Agreement Early
You can end a HP agreement early much the same as a PCP agreement if you have met a certain amount of criteria. Just like a PCP, you have to have paid back 50% of the total amount of finance. With a Hire Purchase agreement, it’s much more likely to reach this halfway mark when you’re halfway through the finance plan. If you haven’t paid the 50%, you simply make up the difference and then cancel the agreement. The car also has to be in good condition in this case too.
Will Handing Back My Carr Affect My Credit Score and Rating?
Voluntary termination of a car finance agreement can appear on your credit file. However, it’s much more favourable than having your car repossessed and is unlikely to make an impact on your overall credit score. If you’re finding that the payments you agreed to are hard to make, don’t be tempted to stop paying. Falling into arrears will hurt your credit score and can negatively affect any attempts to get finance in the future.