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What is voluntary termination and how does it work?

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Unforeseen circumstances happen in life all the time, and when that impacts your ability to pay off your car finance, you shouldn’t need to have your life negatively impacted too much. In these circumstances, a voluntary termination might be an option to consider in order to protect yourself.

Hippo Motor Finance knows that in these cases, your best option is to know your rights as a consumer and that’s why we’re keen to explain voluntary termination – what it means, how it benefits you, how else it affects you and what else you need to consider.

What Is A Voluntary Termination?

Voluntary Termination is a legitimate way for you to legally end your financial relationship with a lender. It’s your legal right to do this when you have entered into a PCP (Personal Contract Plan, sometimes referred to as a Personal Contract Purchase) or an HP agreement (Hire Purchase agreement) but does not cover PCH (Personal Contract Hire) or operating lease deals. The right stems from legislation contained in the Consumer Credit Act 1974, Section 99.

Unfortunately, it’s not that well understood but if you want or need to end your PCP or HP deal early, it can be used to do just this – as explained below.

How does Voluntary Termination Work?

Borrowers often need to end their finance deals for a variety of reasons. Their personal circumstances may have changed, perhaps they have recently divorced or been made redundant, or their needs have changed like having a new baby or needing a car suitable for transporting their pets etc. You may even just fancy a change and not want to wait till the end of the contract period or you may simply not be able to afford the monthly repayments of the car any more for whatever reason.

The legal clause means that you are entitled to apply voluntary termination of car finance without further charge provided you have paid, or make good on paying, 50% of the total amount payable on your PCP or HP deal.

It’s very important to note that you need to include interest and fees in this amount, that you have not missed any of your monthly payments (in which case you forego your voluntary termination rights) and that there is no damage beyond normal wear and tear and that you have taken “reasonable” care of the vehicle if you want to end the car finance early under this right.

The Total Amount Payable (TAP) and the settlement figure will be in your car finance agreement and you must pay off the termination amount (50% of TAP) to end the finance agreement early.

With a PCP agreement, the TAP also includes the Guaranteed Minimum Future Value also known as the ‘balloon payment’. In addition, your finance company should have supplied wear and tear guidelines so you are aware of what is classed as reasonable wear and tear to the vehicle.

What To Consider Before Choosing A Voluntary Termination

There are however a few key points to note:

  • If you wish to voluntarily terminate your agreement before you have reached the 50% mark, you will have to pay the remaining amount to reach that 50% mark. For example, if the Total Amount Payable in £60,000 and you have only paid £20,000, you will have to pay a further £10,000 in order to voluntarily terminate your agreement.
  • Voluntary Termination does not apply to pure leasing or hire situations such as found in PCH or contract hire deals.
  • If you wish to terminate your agreement early, write to your finance company informing them and you hand the car back. As long as you have paid 50% of the Total Amount Payable, there shouldn’t be any further payments required.
  • Voluntary Termination is not the same as Voluntary Surrender which is very different. Going down the route of Voluntary Surrender can mean you give up the car but still have to pay all of the outstanding money once the car is auctioned (often at a rock bottom price) – don’t confuse the two or allow the finance company to claim that you have voluntarily surrendered unless you want a big headache and a big bill.

How Do I Terminate My Car Finance?

Finance companies don’t like Voluntary Terminations. They cost them money and in the case of HP, where mileage is unlimited, the value of the car given back may be considerably less than what the car is worth so it’s a double whammy for them.

As such, some of them can try to string out the process or make it seem difficult to do. Be careful of signing ‘termination packs’ as well as they can have hidden clauses where you may sign away your voluntary termination rights – often it’s best to just write to them, stating that you want to Voluntarily Terminate under the Consumer Credit Act 1974, Section 99 and leave it at that where the day they receive your letter (preferably via registered post and backed up by sending an email) is the day you voluntarily terminate providing that you comply with the other points above.

It’s also worth remembering that if you wish to end your agreement early and keep the car, the voluntary termination route is not the way to go as it’s specifically for those who can’t afford the remaining repayments and therefore must hand the car back.

If you wish to keep the car, you can pay an early settlement fee instead. A settlement fee allows you to pay off any remaining finance including the additional interest, fees and balloon payments in one single lump sum. Once you have paid the settlement fee, you will be the legal owner of the car.

Why Choose A Voluntary Termination?

One of the major advantages of voluntary termination is that this kind of termination does not appear on your credit rating as a negative. The lending company that gave you your original loan may choose not to deal with you but as you have terminated under your legal termination rights you have done nothing wrong so other finance companies will consider you for finance.

Don’t let a previous voluntary termination make you feel like you have diminished chances of being accepted for car finance. Hippo Motor Finance works with a large panel of lenders, including specialists in all forms of credit scores, so we are confident of being able to find a car finance options that suit your current requirements. Check if you’ll be accepted today or call 01254 956 777 today to learn more about how we can help.

Representative Example of Credit

We expect more than 51% of our customers to achieve this rate.

Loan AmountTotal Cost of CreditRepresentative APR48 Monthly PaymentsDeposit AmountLoan TermTotal Amount Payable
£7,500£3019.1619.1% APR£219.77£048 Months£10,519.16

We are a broker not a lender and our registered office is Trident Park, Trident Way, Blackburn BB1 3NU. Our contact number is 01254 919000

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