How To End A Car Finance Agreement Early With Voluntary Termination
Added: 18 January 2017
What is voluntary termination or VT?
Every regulated PCP and HP car finance agreement has a consumer right built into it called voluntary termination or VT for short.
Voluntary termination is the legal right of a borrower (you) to cancel your finance agreement early and walk away in certain circumstances. Car finance companies don’t like it, and it is usually explained very poorly. Luckily for you, White Dove is here to help!
You may find that during your car finance agreement you circumstances change, you may lose your job, your family may grow and you may need a bigger car or other unforeseen circumstances made it difficult for you to keep up with the monthly payments. Depending on your individual circumstances you may be eligible for voluntary termination of your agreement.
The right to voluntarily terminate your regulated Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement is provided in UK law (Consumer Credit Act 1974, Section 99) and should be included in your contract documentation. It is there to offer protection to consumers who can no longer afford their monthly payments, but equally provides some protection to finance companies to ensure borrowers can’t simply walk away from their obligations at any time.
Although it is a good safety net for consumers, it generally loses the finance company money (as you usually haven’t paid off enough to cover your car’s depreciation, the finance company is taking back a car which is worth less than the outstanding finance amount). Understandably, the finance companies do not like this exploitation one bit, but there is nothing they can do to stop it as termination rights are protected by law.
There is a lot of confusion about voluntary termination, and that suits the finance companies just fine. The reality is that if you do it properly, they can’t stop you and it will not affect your credit score or credit rating (although some finance companies may decline any further finance applications from you).
How does voluntary termination works?
As long as you repay 50% of the Total Amount Payable (not the total amount borrowed, as you need to include interest and fees), you are entitled to terminate the agreement and return the car to the finance company. As long as there are no “damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)”, you have nothing further to pay.
The total amount payable (which is the total amount borrowed plus interest and fees, and also includes the Guaranteed Minimum Future Value on a PCP) must be clearly shown on any car finance quotation and contract, so you should be able to find it easily enough. You must pay off half of this figure to be able to voluntarily terminate your PCP or HP.
It makes no difference if you bought your car new or used; the law is exactly the same for both.
Will a VT affect my credit rating?
One of the myths about VT is that it is detrimental to your credit rating or credit score. This is not true. You are simply exercising your legal right to terminate the agreement, and your credit rating will not be affected.
The termination of the agreement will be noted on your credit record, but no details of why the agreement was terminated will be displayed. This is not uncommon, despite what the dealer or finance company may tell you in order to intimidate you.
You should only ever take out finance that you are very confident you can comfortably repay. If you can’t afford to properly finance a £30K car, then don’t buy a £30K car.
White Dove does not offer legal or financial advice regarding your finance agreement, or how to proceed when disputing any charges relating to your VT.