What is voluntary termination of car finance?

Opting for any form of car finance, be it PCP finance or hire purchase finance, is often the ideal way to buy a car without breaking the bank.

However, while you might take our car finance with the intention of completing your replaying arrangement, sometimes a change in circumstances is unavoidable. Circumstances that mean you may have to terminate your car finance agreement early.

There are a variety of reasons why you might need to end your car finance agreement before its end date. The two most common reasons are the desire to get a new car or a sudden and unavoidable change in your financial situation.

In both these scenarios, and many others, you could find yourself eligible for voluntary termination of car finance. In order to help you understand if you qualify, we’ve broken down what car finance voluntary termination is, and how to begin the process.

What is car finance voluntary termination?

Voluntary termination of car finance is as it sounds; it is a legal clause within your financial agreement that allows you to voluntarily terminate repayments on your car with no penalty, provided certain criteria are met.

A voluntary termination is an option available to everyone, meaning both PCP voluntary termination and hire purchase voluntary termination are feasible solutions.

UK law states that you have the right to voluntarily terminate a car finance agreement and return the vehicle so long as you have paid back 50% of the vehicle’s value. Voluntary termination specifically states this as being the cost of the car, as well as any other fees, interest and balloon payments stated in your finance agreement.

It’s a process designed to protect those who can no longer make monthly payments, while protecting lenders by ensuring people don’t walk away from financial agreements. It doesn’t matter if the car is bought new or used, if you feel voluntary termination is your best option, you will be able to pursue it.

How does car finance voluntary termination work?

The process for initiating the voluntary termination process is quite simple. The first thing you should do is assess your current financial situation to be sure that you’ve exhausted all options available to you.

If you deem voluntary termination to be your best option, you should get in touch with your lender as soon as possible and inform them that you wish to begin the process.

The process will then involve a full review of your car finance agreement in order to assess whether or not you’ve covered 50% of your required payment. If this is not the case, the lender will inform you how much you have left to pay.

Finally, you must provide your lender with a written letter or email confirming that you wish to finalise the process, before returning the car to the lender. Often, you may also pay an additional cost to have the lender pick the car up instead.

Voluntary termination and car condition

While everyone is eligible for voluntary termination, this is subject to certain factors. One of the key things you’ll need to bear in mind is the condition of your car upon its return.

A lender may reject your request for a voluntary termination if the car condition is damaged beyond standard wear and tear compared to when the agreement was first signed. Even if they don’t reject your request, excessive damage may require you to pay certain fees to cover the costs of maintenance.

What are the voluntary termination charges?

Typically, there are no charges associated with voluntary termination of car finance, excluding the need to pay any remaining funds to ensure you reach the 50% payment mark.

The only exception to this is the cost of damages, potential balloon payments associated with PCP voluntary termination, and any other fees stated in the contract.

How long does voluntary termination take?

There is no set time limit for how long the voluntary termination process may take. It all depends on how soon you get in touch with your lender.

Does voluntary termination affect my credit score?

No, voluntary termination does not affect your credit score.

Other things to watch out for with voluntary termination

While voluntary termination of finance is a legal option available to everybody, there are still certain things to consider to ensure the process is as stress-free as possible.

First and foremost, a car voluntary termination should not be confused with a voluntary surrender. Voluntary surrender of finances will require you to pay any remaining finances in full.

On top of this, you should be wary of any vague damage clause inserted into your agreement. A vague damage clause will state that voluntary termination can be rejected or you’ll incur costs should damage be suffered, but the level of damage is not stated.

If you notice one of these in your contract, be sure to get it clarified and record the condition of your car throughout your ownership.

Lastly, while some lenders do offer a car voluntary termination calculator for any potential costs associated with the process, it’s always best to go to your lender directly for an accurate figure.

At Zuto, our team is happy to help you begin the process of voluntary termination, while also helping you explore other potential finance options. Get in touch today for help and advice, or head over to our blog for more helpful articles like this one.