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    What is voluntary termination on car finance?

    In layperson’s terms, voluntary termination of car finance lets you end the finance agreement on your car early. The Consumer Credit Act of 1974 allows you to do this, provided that you’ve paid at least 50% of the total amount payable, including interest and fees.

    It’s beneficial if you’re struggling with payments or your circumstances change. By returning the car to the finance company, you avoid further payments, though it’s crucial to understand the potential impacts on your credit rating.

    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 terminationVoluntary surrender
    Allows you to return the car after paying at least 50% of the total amount due, with no further financial obligation.Involves returning the car at any time, but you are responsible for paying the remaining balance once the vehicle is sold.

    It’s worth noting that while both affect your credit, voluntary surrender typically has a harsher impact.

    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. 

    If you’ve paid at least 50% of the total amount of the car, Section 99 of the Act also allows for voluntary termination, and you can return it. Additionally, it offers protection against unfair lending practices, ensuring that consumers can seek redress for issues. 

    Understanding your rights under this Act is crucial for informed financial decisions.

    Eligibility criteria for voluntary termination

    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.

    👍 Your account is in good standing with no outstanding payments.

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

    The steps for initiating a voluntary termination procedure

    1. Review your finance agreement to confirm your eligibility.

    2. Contact your finance provider to express your intention to terminate. They will guide you through the process and provide any necessary documentation.

    3. Return the vehicle in good condition—this can affect your final obligations. 

    4. Document all communications and keep copies of submitted forms to help protect your interests throughout the procedure.

    Documentation for voluntary termination

    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 vehicle, 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
    • Vehicle 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.

    Voluntary termination with hire purchase and personal contract purchase agreements

    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 will not owe any further payments upon returning the vehicle in good condition. Notifying your finance provider to initiate the process and meet all obligations is essential.

    With PCP, this option is advantageous if you decide not to proceed with the final balloon payment. Once the vehicle is returned in satisfactory condition, you’re released from any further financial obligations.

    Communication with your provider is essential for both.

    FAQs

    Does voluntary termination of car finance affect credit rating?

    Yes, voluntary termination can impact your credit rating. While it’s generally less severe than a default, it indicates to lenders that you chose to end the agreement early. Future credit applications may be affected, so it’s essential to consider this before proceeding.

    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. But you must return the vehicle in good condition. 

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