For a number of reasons, people have to cancel their car finance agreements early – this is known as a voluntary termination. Whilst it is your legal right, the process can be complicated to understand – especially when it hasn’t been explained properly. We’re going to break everything down, so you can understand what you’ll need to do in this situation.

What is voluntary termination?

Voluntary termination is your legal right to cancel a car finance agreement earlier than the proposed terms. It works by setting the minimum repayment amount to 50% of the original agreement.

Voluntary termination can be applied to both new and used cars financed on Personal Contact Purchase (PCP) and Hire Purchase (HP) agreements. Although, the process is slightly different depending on the type of car finance you have.

Before you get voluntary termination

In all honesty, the first thing you need to do with voluntary termination is prepare yourself. It can often be quite a consuming process and a fair percentage of lenders will make you do the bulk of the hard work to make it happen. They can continue to charge you until you have completed the process, so it’s best to act as quickly as possible.

If you can, it is also best to stop driving your car as soon as you know that you are going to get voluntary termination. Any damages to the vehicle (normally defined as ‘wear and tear’ and ‘reasonable care’) will be charged to you on top of your other repayments. This can include anything from marks on the bodywork and the interior to claims of excess mileage (usage).

How does voluntary termination work for PCP?

In order to cancel your PCP agreement early, you will need to have repaid at least 50% of the agreed amount. With PCP, this part can be a bit more complicated than other finance options, as normally it will not occur halfway through your repayment scheme. This is because of the balloon payment.

The balloon payment is the amount you have to pay back at the end of the PCP agreement. In normal circumstances, the balloon payment is considered a perk of PCP, as it allows you to make smaller repayments each month. However, the fact that you’ve been making smaller monthly repayments means that you will have to pay a larger amount when you voluntarily terminate a PCP contract.

For example:

  • You’ve got a total car finance amount of £12,000.
  • You’re making monthly repayments of £180 over a four-year period.
  • By the end of your agreement you will have repaid £8,640.
  • At the halfway point, you will have paid back £4,320.
  • You will have a sum of £1,680 still left to pay to reach your minimum of 50% repayments.

Like all voluntary terminations, even if you have paid back over 50% (e.g. £8,000) you won’t receive any refund.

How does voluntary termination work for HP?

Performing a voluntary termination for a HP agreement is a lot easier because you have usually reached the 50% repayment point when you get halfway through your agreement. If you haven’t, you can simply pay the remainder off.

Does voluntary termination affect my credit score?

Voluntary termination will probably appear on your credit score. However, as long as you make your 50% repayment amount and any additional charges (e.g. for wear and tear), it is unlikely to have a sizeable impact on your ability to get car finance in the future.

If you’re struggling with your finance, it can be tempting to not repay your remaining car finance repayments, but avoid this at all cost. Unpaid finances lead to arrears, which can have a negative impact on your credit score, affect your ability to get car finance in the future and could increase your annual percentage rate (APR).

Before you agree to car finance, you must be confident that you can make your repayments now, and in the future. However, for numerous reasons (which are often unforeseen) sometimes it can be necessary to cancel your car finance agreement early. Voluntary termination is a lengthy process, but we hope our advice will help to make it easier for you.

My Credit Rating

Excellent

  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed

Good

  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs

Fair

  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit

Poor

  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past

Bad

  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan
£

X monthly repayments of
£X

Typical rate

Loan amount

Total payable

X% APR*

£X

£X

*for illustration purposes only

No impact on your credit score

Representative Example

Borrowing £7,500 at a representative APR of 23.9%, annual interest rate (fixed) 23.88%, 47 monthly payments of £234.69 followed by 1 payment of £244.69 (incl. estimated £10 option to purchase fee), total cost of credit is £3,775.12, total amount payable is £11,275.12.

My Car Credit is a credit broker and not a lender.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!