Car financing is a common way for individuals to acquire their dream vehicles without making a hefty upfront payment. Two popular methods for financing a car are Personal Contract Purchase (PCP) and Hire Purchase (HP). While these options offer flexibility and affordability, situations may arise where individuals find it necessary to end their PCP or HP agreements prematurely. This is where voluntary termination comes into play. In this article, we will delve into the concept of voluntary termination of car finance agreements, exploring the benefits, conditions, and process involved.
Before discussing voluntary termination, let’s briefly review the basics of PCP and HP car finance agreements.
Personal Contract Purchase (PCP): PCP is a type of car finance agreement that allows you to drive a new or used vehicle for a fixed period, typically 2 to 4 years. During this time, you make monthly payments, which often include a deposit, a portion of the vehicle’s price, and interest. At the end of the contract, you have three options: return the car and walk away, buy the car outright by paying a balloon payment, or use any equity in the car as a deposit on a new PCP agreement.
Hire Purchase (HP): HP is a more traditional form of car finance. With HP, you make regular monthly payments to cover the full cost of the vehicle. Unlike PCP, there is no balloon payment at the end of the contract. Once you’ve made all the payments, you own the car outright.
Voluntary termination, a feature often associated with both PCP and HP agreements, offers a lifeline to individuals who wish to exit their car finance contract before its scheduled end. This option can be a relief for those facing financial hardships, lifestyle changes, or a desire to switch to a different used car.
Voluntary termination isn’t a free pass to exit your car finance agreement at any time. There are specific conditions you must meet:
Personal Contract Purchase (PCP):
Hire Purchase (HP):
It’s crucial to remember that failing to meet these conditions may result in penalties or fees. Always consult your finance agreement and the finance company to understand the exact terms for your specific situation.
Voluntary termination is relatively straightforward, but it’s essential to follow the process carefully:
1. Review Your Agreement: Thoroughly read your car finance agreement to understand the terms, conditions, and any associated fees for voluntary termination.
2. Contact Your Finance Company: Get in touch with your finance company to express your intention to voluntarily terminate the agreement. They will guide you through the process and may provide you with necessary forms.
3. Arrange Inspection: A representative from the finance company will likely inspect the car to assess its condition. Ensure the vehicle meets the stipulated criteria for wear and tear and mileage.
4. Settle Outstanding Amounts: If there are any outstanding payments or fees, make sure you clear them as part of the termination process.
5. Hand Over the Vehicle: Once everything is in order, return the car to the finance company, and they will acknowledge the termination in writing.
6. Keep Documentation: Keep copies of all correspondence and documents related to the voluntary termination. This includes written confirmation of the termination from the finance company.
While voluntary termination can save you money compared to other methods of ending a car finance agreement early, there may still be associated fees and costs. These can include:
Voluntary termination of car finance agreements, whether PCP or HP, offers individuals an escape route from commitments they can no longer afford or no longer desire. It’s a valuable option for maintaining financial flexibility and avoiding the pitfalls of negative equity. However, it’s essential to understand the conditions, the process, and potential costs associated with voluntary termination.
Before proceeding with voluntary termination, consult your car finance agreement and your finance company to ensure that you meet the necessary criteria and understand all the implications. With careful consideration, you can navigate the process and make the best decision for your financial situation and lifestyle.
Share this article: Suggested articles
We’re rated Excellent
4.9 out of 5 on Reviews 1774 “ChooseMyCar is Ranked #1 out of 102 companies in the section Car Finance and Loan Companies with 884* 5 Star Reviews”
*as of August 2021
Caerus Capital Limited trading as ChooseMyCar is authorised and regulated by the Financial Conduct Authority with firm reference number 802631. You can check our authorisation on the FCA Financial Services Register by visiting the following website: https://register.fca.org.uk.
Registered address: Alexandra Court, Carrs Rd, Cheadle SK8 2JY (Company Number: 10933221) Registered with the Information Commissioner’s Office: ZA510674.
ChooseMyCar is a credit broker and not a lender. We do not charge fees for our services however, we will be paid a commission for introducing you to our selective group of lenders (either a fixed fee or a fixed percentage of the amount you borrow), which is determined by the lender. All finance is subject to status. Terms and conditions apply. Applicants must be 18 years or over.
Rates from 9.9% APR: the exact rate you will be offered will be based on your circumstances, subject to status.
Representative example: borrowing £6,500 over 5 years with a representative APR of 19.9%, an annual interest rate of 19.9% (Fixed) and a deposit of £0.00, the amount payable would be £166.07 per month, with a total cost of credit of £3,464.37 and a total amount payable of £9,964.37. Our car buying specialist will look to find you best rate from our panel of lenders and will offer you the best deal that you’re eligible for. We don’t charge a fee for our service, but we do earn a commission. The commission we earn does not influence the interest rate you’re offered in any way.
