If you’ve taken out a car loan, but for whatever reason no longer wish to proceed, you may be considering just handing back the keys. There are usually options available when it comes to ending the agreement early, but it will depend on what sort of car finance you initially took out. You should also take into account the potential financial repercussions - with some arrangements, there may be an early settlement fee, or a balloon payment.
Can You Give Back a Car on Finance?
The short answer to this question is yes, but there are a lot of different factors involved which can make the process more complicated. The main thing that will affect returning a car that’s on finance is the type of purchase agreement you took out - hire purchase or personal contract purchase. We’ve outlined the processes below, so that you can be confident that you’re following the right steps!
Hire Purchase (HP)
Should you wish to end your hire purchase agreement early, this is a straightforward process if you’ve already paid at least half of the total finance amount. Once you’ve paid more than 50%, you can simply hand the car back. And if you’re close to the 50% mark, you can just make up the difference. For instance, if you borrowed £18,000 and have paid £8,000 towards this, making a £1,000 payment would mean you could end the agreement early and return the car.
This process of paying the difference and ending the arrangement early is known as a voluntary termination. This is a legal term, which you can learn more about below.
Personal Contract Purchase (PCP)
Giving a car back on a PCP agreement works in a similar way to hire purchase. As long as you’ve paid at least 50%, you can easily end the contract early and ask for a voluntary termination. The only thing to keep in mind is that this 50% includes the balloon payment at the end of the loan. So even if you’re more than half way through the loan term, you may still have to make a lump sum payment to reach the amount required.
It’s also important to remember that your car will need to be in good condition and not have exceeded your mileage limit when you return it. The details of these provisos will be included in your signed agreement.
If you took out a personal loan in order to purchase a vehicle, this means that the car isn’t tied into the finance agreement. So if you want to end your agreement early because you no longer want the car, you can simply sell it and then pay back the loan.
Many lenders won’t charge you for settling the loan early (the main exception is a mortgage lender) but it’s still a good idea to check whether there is a fee before you settle. Your original contract will have this information.
It’s also important to consider how much your car is worth at the time of sale - vehicles can depreciate in value fairly quickly, so you’re unlikely to get back the amount you bought it for. You may therefore not be able to settle the whole loan with the funds from the sale, and would need to have some money in reserve to cover the difference.
Voluntary Termination Meaning
When you end your HP or PCP agreement early, this is known as a voluntary termination. Voluntary termination falls under the Consumer Credit Act 1974, and was designed to both protect the borrower when they can no longer repay, as well as the lender, so that they’re not left in deficit.
If you do choose to go through with a voluntary termination, you’ll need to give your finance provider written notice first. They’ll then work with you to end the contract early. A voluntary termination shouldn’t have a negative impact on your credit rating, but bear in mind that a voluntary surrender will. This is where you don’t give any notice of termination, and your car is recovered by the lender, then sold at auction. You’ll be charged fees for the sale, along with any deficit between the sale price and the loan amount outstanding. If the lender has to go down this route, you’ll be pursued for the debt and have a negative mark on your credit file. That’s why it’s best to opt for a voluntary termination where possible!
Applying for a New Car Loan
In a lot of cases, people decide to finish their contract early because the repayments are no longer affordable. If this is the case, they may decide to take out a cheaper agreement. This could simply be a less expensive vehicle, or perhaps the individual could move from a hire purchase arrangement to a personal contract purchase.
When it comes to finding a better car finance deal, one of the best ways to do this is to use a broker service. A broker like Wheelie Good Finance can take into account your specific needs and requirements, in order to find you a suitable lender with a competitive rate. We’ll compare the lenders in our panel for you, saving you time and making the process less stressful!