What is Voluntary Termination?

Voluntary Termination: An Overview

Here at CarFinance 247, we understand that everyone’s circumstances are different, and things can change over the course of your car finance agreement. Changes to your income, losing your job, or facing unexpected costs could all make it more difficult to make your monthly car repayment. In this case, you may be eligible for voluntary termination with no penalties. 

Under UK law, you have the right to voluntarily terminate your PCP or HP finance agreement and hand the vehicle back, as long as you’ve repaid 50% of the total amount payable.  

And the amount payable doesn’t just mean the amount you’ve borrowed, this also includes any fees, interest, and – if you’re in a PCP agreement - the balloon payment.  

If you change your mind and decide to keep your car instead, you may be able to refinance your balloon payment.  

Your Legal Rights 

Your right to voluntarily terminate your PCP or HP car finance agreement is provided under the Consumer Credit Act 1974, Section 99. Your finance agreement will also contain details of your rights.  

This law is there to protect car finance customers who can no longer afford their monthly payments. In the same way, it also gives some protection to lenders to ensure people don’t walk away from their obligations.  

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

How does voluntary termination work? 

If you decide that voluntary termination is the right solution for you, you’ll need to repay 50% of the total amount payable, including any interest and fees. This shouldn’t be confused with the total amount borrowed (the value of your car) and is not half of your scheduled monthly payments.  

For a hire purchase (HP) agreement, you’ll usually reach the 50% repayment point about halfway through the agreement. Your lender will be able to tell you how much you’ve repaid.  

In a personal contract purchase agreement (PCP), you might not meet the voluntary termination eligibility point until late in your loan term. You may also have to repay 50% of the guaranteed future value (GFV) of your car. This would be included in the total amount payable if possible.  

Bear in mind that there could also be additional charges added to the total amount payable if there are damages to the vehicle that go beyond general wear and tear.

How do I start a voluntary termination? 

While we hope you can enjoy your car for as long as possible, we understand sometimes life throws a spanner in the works. If you’re in difficult circumstances and are struggling to make repayments and if you’ve exhausted all other options, voluntary termination could be the right choice for you.   

It’s best to contact your lender and let them know that you’d like to voluntarily terminate your agreement. If you’re not sure who your lender is, our Customer Care team will be happy to help.  

1. Access your circumstances and make sure that a voluntary termination is right for you. While a termination doesn’t directly affect your credit score, it may make it more difficult to get approved for finance again in the future. 

2. Review your car finance agreement to find out how much you might need to pay, including any interest and penalties. This may help inform your decision.  

3. Contact your lender and let them know that you wish to start the voluntary termination process. You may need to provide a written letter or email confirming this.  

4. Return your vehicle to the dealership (it may be collected for an additional charge).

Will it affect my credit score?  

Asking for a voluntary termination will not affect your credit score. You have a legal right to terminate and doing so will not be detrimental to your credit score. A record may be left on your report, but the reason for termination will not be shown.  

Can I be charged for excess mileage? 

A used car’s value is in part directly linked to its mileage. On PCP agreements excess mileage can be an issue but the only reason you’ll be changed is if this is specifically mentioned in your agreement.  

Jargon confusing you? No problem!  

Let us explain some of the most frequently used terms for you. Check out our car finance jargon buster here.