Canceling your car finance early

Car finance can be a mind field, even more so if the time has come and you decide to cancel it. You can find out all you need to know right here about ending your car finance agreement early.

What is voluntary termination?

According to Money Expert, canceling your car finance early is also known as voluntary termination, and it is a legal right under UK law. It applies to some types of car finance agreements, such as personal contract purchase (PCP) and hire purchase (HP).

To cancel your car finance early, you need to have paid at least 50% of the total finance amount back to the finance company, says Confused.com. The total finance amount includes any interest, fees, and balloon payment (if applicable). You also need to have taken reasonable care of the car, meaning there is no damage beyond normal wear and tear.

If you meet these conditions, you can write to the finance company and inform them that you want to end the agreement. You will then have to return the car and pay any outstanding charges, says Money Helper.

Canceling your car finance early should not affect your credit score, as long as you have made all the payments on time and do not have any other debts. However, you may lose some benefits, such as warranty or servicing, that came with the finance deal.

Canceling your PCP agreement early

PCP stands for personal contract purchase, which is a type of car finance agreement.

There are two ways to cancel your PCP agreement early:

  • Voluntary termination: This is a legal right under UK law that allows you to end the agreement after you have paid at least 50% of the total finance amount. The total finance amount includes any interest, fees, and balloon payment (if applicable), says Leasing Options. You need to write to the finance company and inform them that you want to terminate the agreement, and then return the car and pay any outstanding charges. This should not affect your credit score, as long as you have made all the payments on time and do not have any other debts.
  • Early settlement: This is when you pay off the remaining balance of the agreement before the end of the term. You need to contact the finance company and ask for a settlement figure, which is the amount you need to pay to close the agreement. This may include an early repayment charge, which is a fee for ending the agreement early. This may also affect your credit score, depending on how the finance company reports it to the credit reference agencies, says Confused.com.

Both options have advantages and disadvantages, depending on your personal circumstances and preferences. It can be a good idea to compare the costs and benefits of each option before making a decision. It’s also a good idea too to check the terms and conditions of your agreement carefully, as they may vary depending on the finance company and the type of car.

Canceling your HP agreement early

Well, first of all HP stands for hire purchase, which is a type of car finance agreement.

There are two ways to cancel your HP agreement early:

  • Voluntary termination: This is the same as we have covered above. It simply allows you to end the agreement after you have paid at least 50% of the total finance amount. You need to write to the finance company and inform them that you want to terminate the agreement, and then return the car and pay any outstanding charges.
  • Early settlement: This is also the same as above in this instance and is when you pay off the remaining balance of the agreement before the end of the term. You would ask for a settlement figure, which is the amount you need to pay to close the agreement. This may include an early repayment charge, which is a fee for ending the agreement early.

Canceling your leasing (PCH) agreement early

Canceling your leasing (PCH) agreement early can be a complicated and costly process, depending on the terms and conditions of your contract. Here are some points you might want to consider before you decide to end your lease early, according to Complete Leasing:

  • You may have to pay a termination fee, which could be as much as 50% of your remaining monthly payments.
  • You may not get back your initial rental payment or any subsequent payments you have made.
  • You may have to pay for any damage or excess mileage charges on the vehicle.
  • You may lose the benefits of leasing, such as maintenance, warranty, and road tax cover.
  • You may have to find alternative transportation or arrange another lease deal.

There are some options that may help you avoid or reduce the penalties of canceling your lease early, according to WhatCar?, such as:

  • Negotiating an early settlement with the leasing company, where you pay a lump sum to end the contract.
  • Transferring your lease to someone else who is willing to take over the payments and the vehicle, subject to the leasing company’s approval.
  • Voluntarily terminating your contract under the Consumer Credit Act, if you have paid at least half of the total amount payable and you return the vehicle in good condition, says AutoTrader.
  • Asking the leasing company for a payment holiday or a reduced payment plan, if you are facing temporary financial difficulties.

Before you make any decision, it can be a good idea to read your contract carefully and contact the leasing company to discuss your options and the consequences of canceling your lease early. You might also want to seek independent financial or legal advice if you are unsure about your rights and obligations.

Can I cancel my car finance with more than half of the balance outstanding?

According to the Consumer Credit Act 1974, you may be able to cancel your car finance with more than half of the balance outstanding if you meet the following conditions:

  • You have a regulated HP or PCP agreement.
  • You have paid at least half of the total amount payable, including the balloon payment for PCP agreements.
  • You return the car to the finance provider in good condition.

This is called voluntary termination, as mentioned above and it allows you to end your contract without paying any extra fees or charges. So long as you’re aware that voluntary termination may affect your credit score and your ability to get car finance in the future then you’re good to go.

If you are thinking of canceling your car finance agreement, it’s good to  be aware of the different types of contracts and the options and consequences of ending them early.

Whether it be due to life changes, an intent to have a different car, or maybe there’s just no need for a car anymore, whatever it may be, just know you have options available.

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