What is voluntary termination on car finance?

Voluntary termination is your legal right to end a hire purchase (HP) or personal contract purchase (PCP) agreement early and hand the car back. Under the Consumer Credit Act 1974, you can use it once you’ve paid half of the total amount payable, including interest and fees.

It can be a lifeline if payments have become a stretch or your circumstances have changed. It’s one of several ways to leave car finance early, and we also cover the other ways to end car finance. Below, we explain who qualifies, what you’ll owe, how it affects your credit, and when selling might leave you better off.

Difference between voluntary termination and voluntary surrender
The legal framework surrounding voluntary termination
Eligibility criteria for voluntary termination
Voluntary termination with hire purchase and personal contract purchase agreements
FAQs

What’s the difference between voluntary termination and voluntary surrender?

*If certain criteria are met, voluntary termination allows you to end your car finance agreement early.*

Both voluntary termination and voluntary surrender will end your car finance agreement early. But they do differ significantly:

Voluntary termination	Voluntary surrender
Lets you return the car after you’ve paid at least 50% of the total amount due, with no further financial obligation.	Lets you return the car at any time, but you pay the remaining balance once the lender sells the car.

The big difference is the cap. Voluntary termination limits what you owe to half the total. With voluntary surrender, the lender sells the car and you pay any shortfall.

What does Section 99 of the Consumer Credit Act say?

The Consumer Credit Act and your protections

The Consumer Credit Act of 1974 provides essential consumer protections in car finance agreements. It ensures transparency in terms and conditions, requiring lenders to disclose key information upfront. It also protects you against unfair lending practices, so you can seek redress if something goes wrong.

Section 99 of the Act, published on legislation.gov.uk, lets you end the agreement at any time before the final payment is due. All you need to do is tell your lender.

Section 99 covers regulated hire purchase and conditional sale agreements, and leasing works differently. MoneyHelper warns that with Personal Contract Hire (PCH), you might have to pay the leasing costs in full if you return the car early.

Section 100 of the Act sets what you owe. It’s the gap between what you’ve paid and half the total price, which includes interest and fees. Your agreement can set a lower figure, and any payments that are already due count towards the calculation.

Here’s an illustrative example with round numbers. Say the total amount payable on your agreement is £20,000 and you’ve paid £8,000 so far. Half the total is £10,000, so you’d pay £2,000 more to reach half and hand the car back.

If you’d already paid £10,000 or more, you’d have nothing extra to pay to reach half.

Can I use voluntary termination on my car finance?

There are specific criteria you must meet to qualify for voluntary termination:

👍 Be in a hire purchase or personal contract purchase agreement.

👍 Paid at least 50% of the total amount due, including the car’s price, interest, and fees.

👍 You can still use voluntary termination if you’ve fallen behind. Citizens Advice explains in its guide to hire purchase and conditional sale that you pay all the instalments due up to the point you end the agreement, so missed payments count towards what you owe. Act quickly, because if your lender ends it first, for example because you haven’t kept up with repayments, it may be able to repossess the car.

You must also notify your finance provider of your intention to terminate, as they may require specific documentation or processes to follow.

How to voluntarily terminate your car finance, step by step

Review your finance agreement to confirm your eligibility.
Contact your finance provider to express your intention to terminate. They will guide you through the process and provide any necessary documentation.
Hand the car back in good condition. Damage beyond fair wear and tear can add to what you owe (see what condition your car needs to be in).
Document all communications and keep copies of submitted forms to help protect your interests throughout the procedure.

Gather your documents

Gather all relevant documents to help with your communication with the finance provider. Key documents include your:

🟢 Finance agreement
🟢 Payment statements
🟢 Proof of identification
🟢 Details about your car, such as:

Current condition
Mileage

This information helps the provider assess your situation.

Clear and concise communication is also essential. Ask about any specific forms or additional requirements they may have to ensure a smooth termination process.

Completing a ‘Voluntary Termination Pack’

Some finance providers may require you to complete a ‘Voluntary Termination Pack’ to formalise the process. This pack typically includes forms detailing your:

Personal information
Car details
Payment history

Fill out these forms accurately, ensuring all information matches your records.

Before submission, review the completed pack for errors. Submit the pack as instructed by your finance provider, keeping copies for your records.

Completing this step is crucial for a successful termination process.

How does voluntary termination work on HP and PCP?

Voluntary termination is an option if you’re struggling with car finance payments.

Hire purchase (HP) and personal contract purchase (PCP) are two of the more popular types of car finance. As mentioned, voluntary termination with both requires at least 50% payment of the total amount due, including interest and fees.

With HP, you won’t owe any further payments once you’ve reached halfway and handed the car back. Notifying your finance provider to initiate the process and meet all obligations is essential.

With PCP, the balloon payment counts towards the total amount payable. MoneyHelper points out that this means you’ll likely only reach halfway towards the end of the deal, if at all. So PCP drivers usually qualify much later than HP drivers on similar monthly payments.

Once you’ve returned the car, you’re released from any further financial obligations, as long as it meets the condition rules below.

What condition does your car need to be in?

You’re expected to take reasonable care of the car while it’s on finance. If you don’t, Section 100 lets your lender add the cost of putting that right to what you owe.

Normal use is fine. The BVRLA (British Vehicle Rental and Leasing Association) sets the industry standard. BVRLA’s fair wear and tear guidance puts it simply: “Fair wear and tear occurs when normal usage causes deterioration to a vehicle.”

Damage is different. The BVRLA describes it as the result of a specific event, such as an impact or harsh treatment. Charges can apply for damage beyond fair wear and tear. It’s worth knowing about any small issues before you hand the car back.

The BVRLA wrote its guidance for leased cars, but MoneyHelper points finance customers to it as well. Take dated photos of every panel, the wheels, and the interior before collection. That way, you have your own record of the car’s condition.

For leased cars, the BVRLA process uses an independent inspection, and you can pay for an independent engineer to review disputed damage. Your finance provider may work differently, so ask how they’ll inspect the car and how you can challenge a charge.

Worried about mileage? According to MoneyHelper, a lender can’t legally charge you a mileage penalty if you’ve taken reasonable care of the car. So a high reading on its own shouldn’t cost you more.

FAQs

Does voluntary termination of car finance affect credit rating?

It shows up on your credit file, but with no record of why the agreement ended. According to MoneyHelper’s guide to ending car finance, it makes little or no difference to your score. That makes it a much better route than missing payments.

Missed payments show up separately on your file and can make borrowing harder. MoneyHelper advises keeping up your payments before you apply, because a missed payment gives the finance company more rights.

Using voluntary termination repeatedly can also put some lenders off, because ending agreements early costs finance companies more.

Can I give my car back to the finance company?

Yes. You can return your car to the finance company through voluntary termination, provided you’ve paid at least 50% of the total amount due. This allows you to exit the agreement without further payments, as long as you hand the car back in line with the condition rules.

Can I voluntarily terminate with negative equity?

Yes. Voluntary termination doesn’t depend on what your car is worth. Once you’ve paid half the total amount payable, you can hand it back even if you owe more than it’s worth.

That makes it a useful option when your car has lost value faster than you’ve paid it off. Selling a car in negative equity leaves a shortfall to clear, but voluntary termination caps what you owe at half the total. Our guide explains what negative equity means in more detail.

Can I cancel car finance within 14 days?

Yes. You have a separate right to withdraw from a regulated credit agreement within 14 days, without giving a reason. Under Section 66A of the Consumer Credit Act, you need to tell your lender, verbally or in writing, before the 14 days are up.

It’s a short window at the very start of your deal. This is different from voluntary termination, which you can use at any point up to your final payment.

Can my finance company refuse voluntary termination?

No, not if you meet the conditions. It’s a legal right. Citizens Advice notes that some lenders say you must pay the whole amount owed before you can end the agreement, and it’s clear that this is wrong.

If your lender disputes it, make a written complaint to them. If it isn’t resolved, you can take it to the Financial Ombudsman Service, a free service set up by Parliament to resolve complaints about financial businesses. Keep copies of your notice and every reply, because they’ll support your case.

Is it time to sell your car?

Want to learn more about owning, maintaining, and selling your car? Check out more of our guides here, covering everything from finding buyers, to negotiating a good price, and completing payment safely.

The information provided on this page is for general informational purposes only and should not be considered as professional advice.