What is Voluntary Termination (VT) of Car Finance?

Voluntary termination of car finance is a legal right that allows you to end your car finance agreement early under certain conditions. It can be a useful option if you find yourself struggling with monthly payments or want to return the car and end the agreement. In this guide, we'll explore the details of voluntary termination, how it works, and the potential impact on your credit rating. We'll also answer common questions about the process, such as how to start a voluntary termination, how long it takes, and what the difference is between voluntary termination of car finance and voluntary surrender. 

What is voluntary termination for car finance?

Voluntary termination (VT) is the act of ending your car finance agreement early, which is a legal right under the Consumer Credit Act 1974, allowing eligible borrowers to end their car finance agreement early under certain conditions.

Voluntary termination of car finance can be a helpful option if you can no longer afford the monthly payments. However, you may still be required to pay any outstanding balance up to the 50% threshold, as well as any charges for excessive wear and tear.

Can you voluntarily terminate a hire purchase?

Yes, it is possible to voluntarily terminate a hire purchase (HP) car finance agreement. You just need to make sure you have first paid off at least 50% of the total amount payable in the finance agreement, including any deposit and monthly payments you've already made. To voluntarily terminate a HP agreement, you'll need to follow the process outlined in your contract, which typically involves notifying your finance provider of your intent to terminate the agreement and returning the car in good condition.

Can you voluntarily terminate a personal contract purchase?

Yes, just as you can with a HP contract, it may be perfectly possible to terminate a personal contract purchase (PCP) car finance agreement, as long as you have already paid at least 50% of the total amount payable. This includes the deposit, monthly payments, and fees but excludes the optional final balloon payment, which does not need to be paid to qualify for voluntary termination. To start the process, you should notify your finance provider of your wish to voluntarily terminate the agreement, and you’ll need to return the car in good condition (beyond the acceptable wear and tear). Additional charges may apply for excess mileage or damage beyond fair wear and tear.

What is the voluntary termination clause?

The voluntary termination clause is a section in your car finance agreement that outlines your legal right to end the agreement early, under certain conditions. Typically, the clause will state that you must have paid off at least 50% of the total amount payable under the agreement to be able to do a voluntary termination. There may also be other conditions outlined in your agreement, so make sure to check your contract carefully before you decide to go ahead with a voluntary termination.

How does voluntary termination work?

Once you've paid off at least 50% of the total amount payable under your car finance agreement, you could exercise your right to voluntary termination. You'll need to return the car in good condition and notify your finance provider that you wish to terminate the agreement. After you've done this, you may have to pay any remaining balance up to the 50% mark if you haven't already paid it.

How do I start a voluntary termination?

To begin the voluntary termination process, contact your finance provider and request a VT. They will provide you with a notice of termination form, which you will need to complete and return to them. This form may ask you for information about your car and your finance agreement.

What is a notice of termination for car finance?

A notice of termination is a document that you submit to your finance provider to let them know that you wish to exercise your right to voluntary termination. It typically includes details about your car and finance agreement, and may also outline any remaining payments you need to make to reach the 50% threshold.

How long does voluntary termination take?

The process of voluntary termination can vary depending on your finance provider and their procedures. Generally, it can take a few days to a few weeks for the process to complete. This includes the time it takes for your finance provider to process your request and inspect the car.

Does voluntary termination of car finance affect your credit rating?

Voluntary termination itself does not negatively impact your credit rating provided you have met all financial obligations, including payments or fees due under the agreement. These can affect your credit score if left unpaid. However, some lenders may consider this when assessing future finance applications.

What is the difference between voluntary termination and voluntary surrender?

Voluntary termination allows you to end your car finance agreement early without directly impacting your credit score, provided you meet all conditions. However, lenders may see voluntary termination on your credit file and consider it when assessing future finance applications. Voluntary surrender, on the other hand, involves returning the car before you reach the 50% payment threshold. This may lead to you owing a remaining balance, which can affect your credit rating if not paid.

Does voluntary termination include deposit?

Yes, the deposit you've paid towards your car finance agreement is counted as part of the total amount payable. This is factored into the 50% payment threshold you need to meet to be eligible for voluntary termination of car finance.

How do I get out of a car finance contract?

You could get out of a car finance contract by exercising your right to voluntary termination, so long as you have paid off at least 50% of the total amount payable. Another option is to ask for a settlement figure to pay off the finance in full, or you can sell the car and use the proceeds to pay off the remaining balance.

Does handing a car back affect your credit score?

Handing a car back through voluntary termination should not negatively affect your credit score as long as you follow the process correctly and ensure all payments are up to date. Your credit score will only likely be affected if you make late payments on your car finance agreements, or if you leave it unpaid. However, voluntary surrender may affect your credit rating, as any outstanding debt could be reported as defaulted if unpaid.

Can I buy a car on finance and then pay it off?

Yes, you could buy a car on finance and then pay off the agreement early if you wish. Most finance agreements allow you to make extra payments to pay off the balance sooner, though you should check with your finance provider for any potential fees or penalties for early repayment.