What is a Voluntary Termination?
Voluntary termination of a PCP contract is just what it sounds like; you’re deciding to end the lease early because your situation has now changed. This is a right that you enjoy as a borrower, and it allows you to walk away from a finance agreement. While your car finance company may not like it, it’s still a right that you can enjoy in certain circumstances.
Voluntary termination law is contained within the Consumer Credit Act 194, section 99 and applies to HP and PCP contracts. The law aims to protect you, as well as make sure that you can’t take advantage of car finance companies when it suits you. This is why it states that you can only use voluntary termination if you have paid off 50 percent of the total amount payable for the car. This is the minimum repayment amount for you to use your right to leave the remainder of the contract. It has to be the total amount payment; this isn’t the amount borrowed or half of your scheduled monthly payments. It has to include any interest and fees, as well as the Guaranteed Future Value (GFV). There should also be no damage to the car, and you must have taken reasonable care of it. You’ll be able to find the total amount paid on your car finance contract. This applies to new and used cars.
Using Your Legal Right To End Car Finance
If you’ve hit a financially bad time, you can use your voluntary termination right as a borrower. It’s important to realise that your finance company probably won’t try to help you. Generally, they don’t like voluntary termination rights; it means that they can lose money. So, be prepared that they’ll offer you no assistance and you’ll have to use your right on your own. They can make it difficult for you to do this and might try to drag on the process for as long as possible. This is how they get more money from you. But always remember that voluntary termination of a PCP contract is your legal right. As long as you follow the rules and regulations, you can use it.
One of the rules of claiming voluntary termination is that there should be no damage to the car other than normal wear and tear. There is the possibility that finance companies may try to claim that there is and charge you for the damage. For example, they may try to claim you’ve used excess mileage. The best thing you can do in this situation is to document your car’s condition. Look back at photographs and use these as evidence you’ve kept the car in the best condition possible.
To use your right of voluntary termination, send your car finance company a letter about it. While you can send an email to them, it’s best to have it in writing and use recorded delivery to ensure they’ve received it. You want to outline in your letter that you are seeking voluntary termination of your PCP contract. Be aware that voluntary termination and voluntary surrender are very different things. Under the latter option, you hand back the car and still have to pay your monthly repayments. Ensure you’re very clear in your letter that it’s voluntary termination you are seeking. Be sure to quote the relevant law, so they know for sure.
If you’re in a good position, try to plan in advance whether you want to use your right of voluntary termination. Always ensure you pay your monthly repayments and don’t miss any so the finance company can’t use this against you. It’s often a sensible approach to the problem. If you fall behind with the payments, you risk damaging your credit score and future purchases. This can also lead to higher APR charges. Know the figures and ensure you’re over 50 percent of the total amount payable for the car. Using your right to voluntary termination doesn’t damage your credit rating either despite what the car finance company might try to tell you. It’s only not paying the monthly repayments that will do this.
Be aware that some car finance companies may try to get you to sign forms or complete voluntary termination packs. Make sure that you don’t complete any of these forms. They can be suspicious and be a way of signing away your rights without realising. You don’t have to do anything else other than inform them you’re using your right and returning the car to them in good condition.
The Threat of Excess Mileage Charges By Your Finance Company
Car finance companies really don’t want you to voluntary terminate your PCP contract. They lose money if you don’t complete monthly repayments and often the car has depreciated in value. One way they try to get money from you is through claiming you’ve used excess mileage driving the vehicle. So, you may be wondering; do you have to pay? There is currently no law or provisions that say you’re responsible for excess mileage charges. As long as you’ve paid over 50 percent of the total amount payable detailed in your agreement and the car is returned in good condition, you don’t have to pay anything else. They can try to send you threatening letters and threatening legal action. But it’s best to ignore this. They can’t force you to pay anything extra. If you have any worries it might be best to consult a lawyer.