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Voluntary termination: how to cancel your car finance agreement early

Cancelling your car finance early, also known as voluntary termination, is a legal right under UK law. It's sometimes confused with voluntary surrender.

There are 2 types of car finance available: Personal contract purchase (PCP) and Hire Purchase (HP). Depending on which you choose, the cancellation process may differ.

Whether there’s a change in circumstances or you’re buying a new car, here’s everything you need to know when cancelling your car finance deal early.

Woman tearing up a contract 

Can you cancel car finance early?

Yes, you can. Section 99 of the Consumer Credit Act 1974 sets out when you can voluntarily end an HP or PCP agreement. It covers both new and used cars.

All car finance agreements have a 14-day cooling-off period. This means you can legally cancel it within the first 14 days of signing the contract. 

This law is there to help protect people who've signed up to a finance agreement but, at some point, became unable to afford their monthly repayments. 

This can occur for several reasons. For example, if you lose your job or have some other change in your financial circumstances that means you can’t pay your car finance agreement.

If you're looking for a new car and want to see how much your monthly repayments could be, check out our car finance calculator.

Other reasons why you might decide to cancel your finance deal early include:

  • You don't need the car anymore
  • You want to get a new car and the best way is to cancel early and get a new finance deal elsewhere

While the law covers both PCP and HP, the 2 types of finance agreements are slightly different in how voluntary termination works. 

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Ending PCP early

PCP car finance is a popular type of car finance deal. You need to pay an initial deposit, followed by a series of monthly payments. 

At the end of these monthly payments, you have 2 main options:

  • Make a 'balloon' payment: This is a fairly large final payment made at the end of some PCP agreements. Once you've paid this, the car is yours.
  • Return the car: If you don’t want to keep the car, you can hand it back. Many people then choose to start another PCP agreement.

You can end a PCP agreement early so long as you’ve paid 50% of the total finance amount back to the company. 

The total finance amount includes any interest and fees that you have to pay. It also includes the balloon payment.

The balloon payment is important because it means you probably won’t pay 50% of the total finance agreement by the mid-way point of your monthly repayment schedule. 

As well as the 50% repayment, you must have taken reasonable care of the car. This means there's no damage present other than normal wear and tear.

As long as you meet these conditions, you can cancel the agreement.

Ending HP car finance early

HP car finance is essentially a type of secured loan where the security is the car you're buying. So, if you don't keep up with the repayments, your car may be taken away.

With an HP agreement, you need to pay an initial deposit, usually around 10% of the amount you're borrowing. This is then followed by regular monthly repayments.

Once you’ve finished your monthly repayment schedule, you then own the car. Unlike PCP, there's no balloon payment to pay at the end.

In the same way that you can cancel a PCP agreement early, you can cancel an HP agreement. This means you must repay 50% of the total finance amount first.

However, with an HP agreement, you might reach the 50% repayment point around halfway through the agreement.

If you haven’t repaid 50% of the total finance amount, you can make up the difference and then cancel.

Again, the car must be in good condition once returned.

Can I end my car finance before the 50% mark?

If you haven’t repaid 50% of the total finance amount, you can still end the agreement early by paying the difference. This is true for both PCP and HP finance but includes the balloon payment if you have a PCP contract. 

For example, if you’ve paid back £15,000 and the total amount is £40,000, you need to pay an extra £5,000 to reach 50%.

If you’ve already paid more than 50% back, you can voluntarily terminate your PCP or HP agreement. But you might not get a refund on anything over the 50%. 

Can I change my car on PCP early?

You should be able to change cars early on in your PCP contract by contacting your lender and paying a settlement figure. 

If you’re cancelling the contract within the 14-day cooling-off period, you should be able to contact the lender and arrange a return. 

If it’s after 14 days, you have 2 options:

  • You can pay the settlement figure, buy the car outright and then part-exchange it to buy a new one
  • You can trade in your current car for a new one on a new PCP contract

If your current car is worth more than the settlement figure, it should be enough to pay off the finance agreement. This leaves you with money to put towards a new vehicle.

If the car is worth less than the settlement figure, you may be expected to pay the difference.  

Will I have to pay voluntary termination charges?

If you’ve paid 50% or more of the total amount owed, you shouldn’t encounter additional charges when cancelling the agreement. 

If you haven’t reached 50%, you need to first pay the difference but then shouldn’t encounter other charges. 

One instance where you may face voluntary termination charges is if you haven’t taken good care of the car. But this shouldn't include normal wear and tear. 

If you believe these charges are unfair, you can appeal them. 

How long does voluntary termination take?

The length of time it takes to cancel your car finance agreement often depends on your personal circumstances and your chosen lender. 

So check your contract first and ask the finance company for more information if you’re unsure.

Will voluntary termination affect my credit score?

Voluntary termination may appear on your credit file. But it’s unlikely to affect your credit score or your ability to get finance in the future.

If you’re struggling to keep up with your car finance repayments it may be tempting to stop paying, making you fall into arrears.

You should avoid this if possible, as this is likely to harm your credit score. This could make it much harder to get finance in the future.

You may also be hit with increased interest charges in the process. So voluntary termination tends to be the better option.