While you may enter into a contract with the best of intentions, sometimes your circumstances can change. And if this means you need to cancel or amend the agreement, you need to consider the ways to go about this.
For example, if your hours at work were reduced, making monthly instalments of a few hundred pounds towards your car loan may no longer be possible. In situations like this, how do you go about ending your agreement early? We’ve explored the topic in more detail below.
Can I End My Car Lease Early?
Whether you’re no longer in a position to afford the monthly repayments, wish to exchange your current vehicle for another one, or simply don’t need a car anymore, there are a few ways you can end a vehicle loan agreement.
Perhaps the best thing you can do if you’re looking to cancel your car lease is read through your original contract. This should have information about ending the agreement, and whether there are any fees or charges for doing so. You can also discuss your choices with your lender directly.
In terms of what options you have available, you should be able to end your agreement, with no questions asked, within the first two weeks, opt for voluntary termination, or pay a settlement.
Ending During the Cooling Off Period
If you’ve only just taken out your car loan, the Consumer Credit Act gives you 14 days to cancel the agreement. This applies to most types of loan, so regardless of how you applied (in person, over the phone or online) or whether you took out a Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement, you can withdraw from the contract.
These initial two weeks are referred to as the ‘cooling off period’ - essentially, you’re given a bit of time to assess the agreement once it’s in place, to see if it suits you. As long as your loan was equal to, or less than, £25,000, you’ll have a cooling off period. If your car loan was over £25,000, you’ll need to check the terms and conditions in your contract.
Ending Car Finance Through Voluntary Termination
Most car loan agreements have a clause entitled ‘voluntary termination’. As you can probably guess from the name, this is when you explicitly agree to end your contract. As long as you’ve paid at least 50% of the total cost, you can simply hand back the keys to the car, and won’t need to make any further payments.
Do bear in mind that the 50% you need to pay in order to opt for voluntary termination isn’t just the value of the vehicle. This includes all the interest and charges you agreed to at the start of the loan. If you haven’t yet reached 50%, you can make additional payments to reach that point, and then ask to terminate the contract. And as long as you’ve made your repayments on time, voluntary termination shouldn’t impact your credit rating.
Voluntary termination works a little differently depending on the type of car loan you took out. We’ve outlined the details below:
Voluntary Termination With Personal Contract Purchase (PCP)
Voluntary termination, if you have a PCP agreement, is fairly straightforward. As mentioned, you need to have paid at least 50% of the total amount due, and you can then return the car. But it’s unlikely that this will happen when you’re halfway through your contract, as you need to factor in the balloon payment at the end of the term.
As the balloon payment can be a large amount of money, as it’s essentially the estimated value of the car, you may need to wait much longer until you’ve paid 50% of the total value. So if your contract is for four years, just because you have been making payments for two years, this doesn’t mean you’re eligible for a voluntary termination.
Voluntary Termination With Hire Purchase (HP)
With PCP, the expectation is often that you’ll return the car at the end of the agreement anyway. But with HP, you’d generally own the vehicle at the end of your contract. So if you decide to proceed with a voluntary termination, it will be as if you took out a PCP agreement.
As there’s no balloon payment with a hire purchase, you’ll typically reach the 50% point roughly halfway through the agreement. So if you are two years into a four year contract, chances are you can hand back the keys to the vehicle. There may be fees to cover any significant damage to the car, however, beyond the expected wear and tear.
Is Voluntary Surrender the Same as Voluntary Termination?
While voluntary surrender sounds similar to voluntary termination, and they both involve returning the car, they are very different options. With a voluntary surrender, you’d agree to give the vehicle back, and it would be sold at auction. If it doesn't sell for more than the amount you still owe, you’ll be legally obligated to cover the shortfall.
Not only this, but there are often additional fees and charges to pay with a voluntary surrender, to cover things like the administration costs. And if these are not paid, your debt could be passed on to debt collectors, or you could be taken to court. A voluntary surrender can therefore have a negative impact on your credit file. Essentially, you should only go down this route as a last resort!
Ending Car Finance If You Want to Keep the Car
If you want to terminate your contract, but still keep the vehicle, you can ask your lender for a settlement figure. Most lenders are happy for you to settle the loan early, and in the majority of cases, there won’t be an early settlement fee.
The figure you’re given will include any outstanding charges, as well as the vehicle’s Guaranteed Minimum Future Value (GMFV). This is the amount the car is expected to be worth, at the original endpoint of your finance agreement. Once you’ve paid the settlement figure, you will own the vehicle outright, and won’t have any further payments due.