Can you end PCP and HP early?
When you enter into a car finance agreement, as the borrower you have the legal right to cancel the agreement early.
This means you must hand back your vehicle, and you’ll be liable for 50% of the ‘total amount payable’ of your car finance balance. This amount includes any interest and extra charges or fees, plus what you owe on the car.
All regulated finance agreements have to contain information about exactly how much that 50% mark equates to in pounds and pence, check your agreement or speak to your lender.
Having the right to voluntary termination can offer peace of mind if your circumstances change while you’re in the middle of a finance agreement, or if your car no longer fits into your lifestyle.
How does voluntary termination work?
To voluntarily terminate your car finance agreement, you’ll have to notify your car finance provider in writing – this could be via email or a letter.
At this point, you will be liable for 50% of the car finance agreement, so you’ll need to have paid or be planning to pay half of your finance balance before your agreement can be terminated.
You will also need to pay any arrears or charges that you owe, like repairs that are more than fair wear and tear.
Your car finance company will then take back your car and give it a check to make sure it’s in a good condition that matches its age and usage.
Once you’ve paid what you owe and the car has been returned, your car finance agreement will be terminated.
Does voluntary termination on car finance affect your credit score?
The voluntary termination will show up on your credit report, but a credit agreement during which there are no missed payments and a mutually-agreed ending is proof that you can handle credit responsibly.
If you want to terminate your car finance agreement as you can no longer afford the repayments, it’s important to inform the car finance company as soon as you know you can’t pay your bill.
Unpaid car finance will have a negative impact on your credit score and can make it harder for you to get any sort of finance again in the future.
Mutually ending the agreement with no missed payments, however, is a much more positive thing to have on your credit report.
Voluntary termination for Hire Purchase (HP) car finance
When you reach the end of a HP car finance deal, you’ll be the legal owner of your car.
If you want to terminate your HP car finance contract early, you’ll need to have paid half of the total amount payable before you can do so.
You might have already reached a point in your contract where you’ve paid half of your balance through your usual monthly payments, but you also have the option to top up your payments to reach the halfway point.
You’ll find that you will have paid off half of your total amount payable around the middle of your HP contract.
Voluntary termination for Personal Contract Purchase (PCP) car finance
At the end of a PCP car finance contract, you’ll have the option to hand back your car or pay a final balloon payment and become the legal owner of the vehicle.
If you choose to voluntarily terminate your PCP car finance contract, you’ll be required to pay 50% of the total amount payable.
With PCP, this includes that extra balloon payment that you would have the option to skip at the end of your contract.
If you're at a point in your contract where you’ve covered the sum equal to half of your total amount payable, you can voluntarily terminate your contract and hand back the car. This is likely to be towards the end of your contract due to the balloon payment.
If you haven’t yet reached that point in your payments, you’ll be liable for paying the extra to top up your balance to reach that halfway point.
When can I voluntarily terminate my car finance agreement?
You can voluntarily terminate your car finance agreement at any time in your agreement, as long as you have paid 50% of the total amount payable, or are willing to pay the extra to reach that figure.
Under the Consumer Credit Act, you’ll get an initial 14-day cooling off period where you can withdraw from your agreement.
This is great if you change your mind in the early days of your contract.
Can I pay off my car finance early?
If you want to end your car finance early but want to keep your car, the car finance company can usually give you an early settlement figure.
This is an amount you can pay to end your agreement and take ownership of the car.
By choosing an early settlement, you can end your monthly payments but still keep hold of your car.