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Car finance advice

Car finance: Voluntary termination of a PCP or HP

A guide to voluntary termination of your car finance agreement. What legal rights do you have?

Voluntary termination is one of the most misunderstood aspects of PCP car finance, so we’ve put together this comprehensive guide to explain your right to end your agreement early if you need to.

We have previously explained the ins and outs of settling a PCP early, but here we’re looking at a different option for ending your PCP before the end of your contract.

We will look at a consumer right that is built into every regulated personal contract purchase (PCP) and hire purchase (HP) car finance agreement – your right to voluntary termination (VT).

This guide will explain what a voluntary termination is, why it exists and how to go about cancelling your agreement by VT. We’ll also answer a couple of the most common questions about voluntary termination.

What is voluntary termination?

Voluntary termination of a PCP or HP 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, plus it is usually explained poorly (or not at all) by dealers. Luckily for you, The Car Expert is here to help!

Often people’s circumstances can change over the course of a car finance agreement, that leave you unable to make your monthly finance payments. You might lose your job, your personal circumstances can change in different ways, or other unforeseen factors might make it difficult to keep up with your monthly car payments.

Depending on the circumstances, you may be eligible for voluntary termination of your car finance agreement with nothing more to pay and no penalties.

UK law provides you with the right to voluntarily terminate a regulated HP or PCP agreement (Consumer Credit Act 1974, Section 99). Your contract documentation will detail your rights.

The law is there to protect consumers who can no longer afford their monthly payments. Equally, it provides protection to finance companies to ensure borrowers can’t simply walk away from their obligations at any time. It does this by setting the minimum repayment amount at 50% of the total amount payable (which we’ll explain shortly).

Exploiting the safety net

Voluntary termination clauses in car finance agreements are there to protect consumers. But there’s no doubt that some borrowers will exploit the clause to allow early cancellation of a PCP or HP if the numbers are favourable.

Although voluntary termination provides a safety net for consumers, it generally loses the finance company money. Usually, you haven’t paid off enough to cover your car’s depreciation, so the finance company is taking back a car that is worth less than the outstanding finance amount.

Understandably, finance companies do not like this one bit. But there is nothing they can do to stop it as the law protects your termination rights.

There is a lot of confusion about voluntary termination, and that suits the finance companies just fine.

The reality is if you do voluntary termination properly, they can’t stop you. What’s more, voluntary termination will not affect your credit score or credit rating. However, some finance companies may decline any further finance applications from you.

How does voluntary termination work?

You can end your agreement and return your car to the finance company as long as:

  • You repay 50% of the Total Amount Payable (not the total amount borrowed, as you need to include interest and fees, and not half of your scheduled monthly payments)
  • There are no damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)

Assuming you have complied with both of the above, you’ll have nothing further to pay.

What is the Total Amount Payable?

This is a commonly misunderstood term, but it underpins everything about how voluntary termination works.

The Total Amount Payable is the overall cost of the vehicle, plus interest and fees on what you’ve borrowed. It also takes into account any deposit or part-exchange that you put in at the start of the agreement.

On a PCP, this includes the balloon payment, which is a large lump sum that you have borrowed but do not repay until the very end of the agreement (it’s also called the guaranteed future value, or GFV, which is technically a different thing but it doesn’t matter here).

To be able to voluntarily terminate your agreement, you have to repay (or have already repaid) 50% of the Total Amount Payable. It is not 50% of the contract duration, or 50% of what you borrowed.

If you have a PCP agreement, you usually don’t reach the voluntary termination point until very late in your contract. Because of the large balloon amount, you have borrowed much more money than you are repaying with your regular monthly payments.

For a regular hire purchase (HP) agreement, you will usually reach the 50% repayment point about halfway through the agreement because your monthly payments cover the entire borrowing with no balloon payment at the end.

The Total Amount Payable and termination amount must both be clearly shown on any applicable car finance contract, so you should be able to find it easily enough.

You can still enact a voluntary termination of a PCP or HP if you haven’t reached this point, but the finance company will invoice you for whatever is still owed to get to the 50% point, which could be thousands of pounds.

It makes no difference if you bought your car new or used; the law is exactly the same for both.

What sort of damages are covered and not covered?

The point relating to damages is somewhat vague and confusingly written.

The law states that there must not be any “damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)”. However, there is no definition of what that all means, or what constitutes “normal wear and tear”.

This means that there is considerable opportunity for the finance company to try and charge you for damages, while there is also no legal guidance as to how much the finance company can charge you for damages. It’s ultimately all a negotiation.

How do I start a voluntary termination?

Theoretically, enacting a voluntary termination is as simple as writing to the finance company. In reality, it usually gets more complicated. There are a few problems you may run into, so it’s important to make sure that you have everything sorted out first.

If you want to terminate your PCP or HP, plan it in advance. Keep paying your monthly bills until you can exercise your termination rights. The rules are very different if you are terminating the agreement from a position of strength, rather than the finance company cancelling the contract and claiming costs because you have missed payments.

Voluntary termination may be your legal right but finance companies and car manufacturers generally dislike it, and would prefer the clause be removed from the law. They’re not exactly going to go out of their way to help you.

The finance company will quite probably lose money when you VT your finance agreement, so they can and will try to claw back money from you. They will charge you for damage that would not be considered “reasonable care”, and will often use this clause as an excuse to try to pin you for excess mileage.

Usually, this involves threatening letters and large invoices for minor scratches or excess mileage. There will often be various forms and legal jargon to try and scare you into paying up.

Consumer legal advice forum LegalBeagles has some excellent advice about documenting your car’s condition with dated photographs to prove it is in “reasonable” condition when you hand it back. LegalBeagles also has a template letter you can send to your finance company to start your voluntary termination.

It’s also important to know that if you have defaulted on your loan (ie – missed payments), the finance company can potentially refuse to allow you to voluntarily terminate your agreement.

If your financial position is looking wobbly, it is better to be decisive and act early. If your situation collapses and you are no longer able to pay your bills, you may well end up unable to terminate your car finance agreement either. You may have to go down the path of Voluntary Surrender, which is very different to Voluntary Termination (see below).

Do I need to fill in a ‘Voluntary Termination pack’?

Voluntary termination is not voluntary surrender

There is a big difference between voluntary termination and voluntary surrender. If you don’t communicate your intentions to the finance company very clearly, it could cost you thousands.

Under a voluntary surrender, you give back the car but still owe whatever is left to pay. The finance company will sell the car at auction (adding on extra costs for collecting and disposing of the vehicle) and then come after you for whatever you still owe.

This is pretty much a worst-case scenario, as the finance company will still be chasing you for money even though you’ve already given back the car.

Be clear in your language and do not get sidetracked by anything unrelated. Specifically, point out that you are exercising your legal right to voluntarily terminate your car finance agreement as set out in your contract and the Consumer Credit Act 1974.

This is important so that the finance company can’t accidentally or deliberately misconstrue your termination for voluntary surrender.

Leases do not have VT rights

There are many types of car finance, and not all of them are equally protected. If you have a lease (such as a contract hire or operating lease), then you are more limited in your options.

It’s expensive getting out of a lease early, and there is limited support available to help you. You are simply renting the vehicle, with no intention of eventually owning it. As a result, you are not covered by VT rights like you are with a PCP or HP.

Lease agreements (usually a form of contract hire) are usually preferred by business users. However, a number of finance companies are now promoting personal leasing for private individuals. This is partly due to the absence of voluntary termination rights in a lease.

If your agreement has voluntary termination rights, they will be clearly spelled out in your contract. Make sure you understand what type of finance agreement you are being offered before you sign on the dotted line.

Next page: Will a VT affect my credit rating? Can I be charged for excess mileage?

Here at The Car Expert, we are building commercial partnerships with companies who can offer you competitive PCP deals on either a new or used car (as well as other types of finance if you prefer). Check these out before signing any finance agreement with a car dealer:

  • We Finance Any Car can arrange PCP or HP finance at competitive rates
  • FairSquare can find and finance either a new or used car, and deliver it to your door

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Looking for an alternative to dealer finance? Our commercial partners can offer you a great deal.

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Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

952 COMMENTS


  1. Hi Stuart, I acquired a car on PCP on 24 months contract. Due to personal reasons I will be moving abroad and would like to terminate the contract early. I would expect the value of the car to be higher than the guaranteed value as rhe mileage is very low and the car is in a very good condition. I was wondering what my best option is and was wondering whether selling it to another dealer who would settle the finance would be at all possible when terminating contract early? Could you advise regarding my options?


  2. Hi there, I’m 2019 I’ve financed my Suzuki celerio. At the time I was 22 yo in a foreign country with not very good English now that my English got better I was going through my paperwork and I have found out that I’m on a 36% apr so for a car that is now worth £3600 I’ll be paying over triple the amount is there’s any way I can get out of it before paying the 50% and do the VT?

    Can someone help? I’m desperate


  3. Hello Stuart , I bought a van on a pcp and it’s still not been delivered although the pcp company have took deposit money , it’s over a month late now and the company I am dealing with just give me , next week stories that have carried on for a month now, Can I still cancel this with out any penalties and get my deposit money back do you know please ?


  4. Hello Stuart
    My daughter (who lives with me) bought a car on PCP in October. During lockdown, she started having seizures and is now not allowed to drive for a year after they stop, but they haven’t stopped yet. She has had to give up her job and her savings are running out. I have my own car on PCP and still have 3 years left on it so I can’t give that back and use her car. Is there anything in the PCP clauses that allow you to hand the car back on medical grounds or will I end up having to pay for something that sits on my drive and goes nowhere?


  5. Hello Stuart, I wonder if you could help. I had a car financed by Black Horse and I handed it back under VT last December. I had never missed a payment and in fact had paid one payment more than I had to, so I was well over half the amount under the HP agreement. They came up with this guff about the 2nd semester and I owed them £395.00 I asked them for a breakdown of it, but never paid it and they never gave me a breakdown of the money they said I owed. I eventually received a letter to say that they will not chase this but that I was in arrears and it could be on my credit record. I have discovered they have put this on my credit report and it is showing as a default. Can I demand they take this off.


    • Evening,
      I am looking to VT my Mercedes, I have contacted Mercedes today double checking I have paid back 50% or more which I have so would not incur a shortfall charge.
      I have the vehicle contracted for 20,000 miles per year I am 33 months into the contract so am well below worrying about any excess mileage.
      I received a form from Mercedes asking me to sign and return to them, this was their VT form.
      I have read in many places that I just need to send my own letter in writing and do not need to fill in any forms from the finance company.
      Has anyone dealt with Mercedes recently, did you fill this form in or am I in my rights to just write my own letter?

      Thanks
      Matt


    • Once you formally inform the finance company (ie – in writing) that you are exercising your right to VT the agreement, it is terminated. You are not required to fill in or sign any other paperwork, regardless of what they tell you.


  6. Hi Stuart,
    Just about to do a VT on my BMW as per instruction from the Dealer. I am very much over my mileage allowance and was prepared to pay but from reading your article it would appear that I should hold out. Can I just ask when you say that there is no provision for charging excess mileage in the law, how does that work when you have signed a ‘Finance Agreement’ and were made aware that there would be charges from excess mileage?


  7. My name is Neil Ward
    I am trying to find some advice about a pcp finance contract on my car. At the end of November, I had a stroke which left me with movement difficulties and also an onset of focal seizures (which is classed under the epilepsy umbrella). As a result of this I have had to surrender my driving licence for a year until I do not have any seizures under the medication that I am on.
    The pcp is due to run out at the end of May, and whilst in normal circumstances I would have traded my car in. I am in a position whereby I cannot drive the car at the moment and at present am paying for basically a brick on my drive way.
    When I took the car on, I was not made aware or the mileage limit of 5000 miles per year on the contract, and due to the mileage that I do for work, the mileage on the car has accrued somewhat of a penalty of £2400 according to the finance company. Along side of balance of payments and collection fee and any repairable damage, I have been told that this will amount to a total of around £4000 along with a marker that will go onto my credit file for 6 years if I surrender the car. I was advised my the finance company to sell the car to a dealer and repay the money to them that way. I have phoned a couple of car dealers and they are not buying cars at the moment due to obvious circumstances. The other alternative is according to the finance company is to refinance the balloon payment on the car
    Is there any other options available to me as this is causing a lot of undue stress and feel that I am not getting any clear help and advice from anywhere.


  8. Hi Stuart . My Ford Focus eco boost broke down . It’s got clutch and gear box problems and I have been quoted worst case £1500 to repair . I’m.currently on a PCP 2 and half years into 4 year deal . The car is 14 plate and only 40 k miles and I really dont or can afford to pay this repair or afford now the monthly payments as not working . Car has never had any issues MOT wise regarding the 3 MOTS I have put it through so car has obviously not been bad used . Where do I stand if I want to return car . The finance company have only recently been in contact asking me to fill in forms over phone and making me liable for outstanding payments and taking car away . I’ve to get back to them.on that . Any info would be greatly appreciated thanks
    Regards
    Stuart .


  9. Hi Stuart I purchased a car on hp in October 2020 I picked the car up on Friday over the weekend founds lots of faults with the car on the Monday I contacted finance company and garage I purchased the car from who both refused to return the car I couldn’t drive the car for 3 months due to over fill of oil and few other faults I found finance company have sent out 3 inspections of the car to which they all come back with the faults I’ve told them about the garage has drained oil fo me to use but say car is all good and will not allow me to return car it has a diesel leak so I’ve had to stop using car again what course of action do you advise please
    Many thanks Paul wisbey


  10. Hi There,
    Im looking for some advice. We wish to do a VT on our car agreement which is listed as a conditional sale. Is this the same as a PCP? We have paid over the 50% now but no longer require the car as we have moved to Europe so need a Left hand drive. I have the letter ready to send but Im concerned about getting the car back. Can we advise them we will take to the garage we purchased from? The car is obviously fully insured so I was thinking of driving it back straight to the garage and then heading back. Once handed over I would then cancel insurance etc. Im even thinking I should get back to Uk first before notifying them? Thanks for any advice


  11. Hi stuart
    I have a kia on pcp have been paying now for 1yr 6months unfortunately circumstances have changed dramatically and need to terminate my finance as will no longer be able to afford anymore. What steps do I need to take and have I got anything that will have to be paid.
    Thanks phil


    • Hi Phil. Your contract is unlikely to have any provisions for financial hardship that would allow you to terminate your agreement – other than voluntary termination, which is your legal right but means you still have to repay 50% of the total amount payable.

      Speak to your finance company and see if they can offer you a restructured payment plan. They are obliged to make attempts to treat you fairly, but it’s unlikely that you’ll be able to simply give the car back and walk away.


  12. Hi Stuart,

    Last week I sent an email to Santander Finance asking to voluntary terminate my PCP. I have paid over half and no monies owed. Anyway my circumstances have now changed and I wish to keep the car and cancel the voluntary termination. I have spoken to Santander and they have said its too late as the paperwork has now gone to Crystal Collections and I need to give the car back! Surely I am able to change my mind and now keep the car and keep making payments. Anybody ever cancelled a voluntary termination?


    • Hi, was just wondering how you went on with this? We are in same position with Blue motor finance. They say the VT is not reversible. Due to be collected tomorrow by Crystal Collections


  13. Hello, Really need advice. Have a vauxhall insignia and just last week got a dreaded low oil pressure error on the dashboard. immediately got it towed to a garage of which several have said needs engine swap or scrap car. i have only10 months left on finance, which been paying for over 4 years so way past 50% paid. i cannot afford the repair as its £3000 and car is not worth that at all. i am thinking of VT and letting them collect the car. am i right in thinking that because the car still runs and drives and the warning only just comes on after 5 minutes(engine warm) i can send them my email or letter for VT and let them colelct the car which is in good confdition all around apart from that error that comes on that i wont have to pay any extra charges by them? i just dont know whether to VT and keep fingers crossed no bill is sent to me forthe eninge replacement. or keep the car and keep paying the £200 per month till april which is £1800 which is stupid just incase they send me a bill thats more than that price? please help. many thanks for your time
    Adam


    • Nope – I’m returning my RR on VT but no finance companies collect with a warning light. I’ve just had to pay 1.5k to replace a rear diff pump which should’ve been replaced before I even got the car via warranty. I really feel pcp is rip off & is mis sold with no come back for customers especially if you take a used vehicle.


  14. Hi Stuart, I’ve just seen this post, I have a Mercedes car on PCP for 4 years and I have just paid to the 3 year point. In May ’21 I will have paid 50% of the PCP so could return under voluntary termination. My question is that I have been paying for 20,000 miles a year on PCP but in 2 years have only driven 24,000 miles. Should I reduce my contract to a lower milage (can only do once) so I equal the amount I should have paid? as surely if I carry on at this rate and voluntary terminate I will be heavily out of pocket for the miles I’ve paid for and haven’t used?


  15. Hi guys

    I have just notified finance company I wish to VT car. They say due to covid, there is a backlog and may not be picked up for up to 5 weeks. Also to keep insurance until such time

    What are my rights?

    I have a new car so wish to end old insurance asap. Old car will be kept in private drive.

    Do I need to keep insured?!

    Thanks


  16. Very helpful article.
    I’m looking to VT a vehicle which i’ve made 44 out of 47 payments so nearing the end (and was going to hand back anyway).
    I also recently opted in for the 3 months payment break launched by the government. When i spoke to the finance company they mentioned if i VT i will have to owe those 3 payments as they are an arrears. Is this right? Surely as i’ve contributed more than 50% i don’t have to make these payments?


  17. I have a car taken out on finance, I’m coming up to the balloon payment but the car has suffered engine failure due to a design fault. It has regular service history from a main dealer and has had no other issues until this which is above normal wear and tear


  18. I have a Skoda Fabia on a PCP with Volkswagen Financial services. I’m 38 months into a 41 month contract. Im considering a VT. At the time of purchase, there was a special offer of a £2000 manufacturers deposit contribution.
    On checking my finance agreement, it says that the Total Amount Payable includes the manufacturers deposit contribution. I understood from your explanation of VT that the Total Amount Payable consists of amount of credit plus interest and other payable fees.
    Can they legally include the manufacturers deposit contribution in the Total amount payable?


    • Hi Mick. Yes, the deposit contribution counts towards your total amount payable and therefore your VT amount, which works in your favour compared to a £2,000 discount of the price of the car. Here’s a quick explanation:

      If your car was £10K and you got a £2K discount, that would make the total £8K. Ignoring deposit and interest for the purpose of this example, if you borrowed £8K then your VT amount would be £4K. You have no deposit so you need to reach £4K in payments.

      If the car was £10K and you got a £2K deposit contribution, you’re borrowing £10K and so (again, ignore deposit and interest) your VT amount would be £5K. But they’ve given you £2K already, so you only need to pay another £3K to reach your VT point.


  19. Hi, I have a question i can’t find the answer to anywhere so if this has been asked I apologise…. if I VT on my contract am I still subject to its obligations if I do not use the vehicle and even declare it sorn? The finance company are refusing to collect the vehicle due to the current climate but saying that I am still liable for any damage that occurs to it even after the end of the agreed finance date. I don’t want to be liable for a vehicle that I should no longer have and am only in possession of because of a failure on their side, therefore will VTing my contract mean if they refuse to collect the vehicle it’s their problem not mine…. I mean I can’t see how their refusal to collect or even inspect the vehicle can lead to additional exposure to risk on my side…. any help would be greatly appreciated. Cheers


    • If you have voluntarily terminated the finance agreement, it is now up to the finance company to insure the car until they can collect it. You are not allowed to use the vehicle (unless they ask you to move it and it’s convenient for you to do so).


  20. Hi I need to hand my car back as I now can’t afford it,bad business and Coronavirus!Ive got it on 49 months pcp and only had it 12 months,I owe £13795 on it for early termination but it’s not worth that.Im going into an Iva and they have instructed me to hand it back and take the hit on the depreciation and put that debt into my plan.Whats the worse case scenario and how do I do it.Thanks


  21. If I VT my car do I need to get the dealer to print off the service certificates & do I deal the V5 like any private sale?


  22. Hi – I have a Hire Purchase agreement with Clydesdale Asset Finance. I took this out on a RR sport Feb 2017 for a total price of £88, 080.80 (including interest etc.). This is over a 48 month term. I have recently written to them asking to exercise my right to VT the contract (just over 2.5 years into the term). I noticed before writing that the VT figure being £44040.40 was less than the final payment amount being: £44805.85. Given this I stressed I thought the contact was badly structured and didn’t provide me with the option to exercise my right.

    They formally wrote back saying I had requested a monthly premium of roughly £700 hence the structure, plus the paperwork made me aware. They also confirmed I could still exercise my right by paying the delta being: £12059.05 + I could have made overpayments at any point. Therefore they didn’t uphold my complaint.

    In the process of discussing with the FO and CA, but the FO process will take circa 9 months given workload!

    Interested to hear if you think I have any case to push. Welcome your thoughts?


  23. Hi there

    I VT’d my Mercedes with 3 months to go (well over the 50% threshold for PCP). I had just completed the 45,000 miles that I signed up for as they collected the car (3 months early). They are now trying to charge me excess mileage on a pro-rata basis for the 3 months I didn’t have the car.

    Do I have to pay this?