When you are buying a car on finance you have the right to hand the car back and end the agreement. Depending on how much you have paid, you may not need to pay any more.
This is known as Voluntary Termination (VT). It applies if you have an HP or PCP finance agreement.
This article explains your rights and what you have to do to VT your car.
In 2021, many people who have lost income because of coronavirus may be unable to pay their car finance. You are allowed up to 6 month payment breaks because of Covid-19 – during this time interest is still added but your car can’t be repossessed and your credit record will not be affected.
When you have used all your 6 months breaks, you can try to make an arrangement for lower payments with your car finance lender.
But if your problems are likely to last a long while or you simply don’t need the car, it is often much better to VT a car than have the lender repossess it.
The finance companies don’t like this – they would make more money if you kept paying them. They probably won’t suggest voluntary termination if you say you have money problems. Some may not be helpful when you tell them you want to hand back your car. And some may try to add extra charges on.
It may seem complicated but many people find it a straightforward procedure and don’t have problems.
Contents
Background
The types of legal agreements this applies to
Voluntary Termination applies to the following types of car finance:
- Hire Purchase (HP);
- Personal Contract Purchase (PCP) – this is a type of HP where you have to make a large payment at the end to own the car. The same VT rules apply as for all other HP contracts.
- Conditional Sale – this is very similar to HP and the terms for VTing a car are exactly the same as for HP. Wherever you see HP in this article, the same applies to Conditional Sale contracts.
There is no right to VT your car if you are leasing it.
If you have borrowed the money from your bank, you may have a simple loan, not linked to your car. Here you own the car already and this article is not relevant for you. If you can’t afford the loan repayments, the bank cannot repossess it.
Three reasons why you may want to hand back your car
- You can’t afford the repayments. It’s best to get advice on your debt options before you do this. Talk to National Debtline on 0808 808 4000 – they can help you look at your alternatives.
- There may be a lot of negative equity in the car. This can often occur when the finance interest rate is very high. Sometimes the remaining payments you should make are more than the car is worth!
- The car may no longer be suitable so you want a different one. I’ve looked at this situation in Can I get another car after VT or is part exchange better?
Whatever your reason for wanting to hand back the car, the procedure for doing it is the same.
Your right to terminate (VT) your contract
All HP contracts have the same provisions letting you terminate the agreement and hand back the car. Your rights are defined in Section 99 of the Consumer Credit Act 1974.
The agreement you received when you bought the car will have the following clause:
TERMINATION: YOUR RIGHTS
You have a right to end this Agreement. To do so, you should write to the person you make your repayments to. They will then be entitled to the return of the Goods and to half the amount payable under the agreement, that is [£x – the exact figure for your contract]. If you have already paid at least this amount plus any overdue instalments and have taken reasonable care of the goods, you will not have to pay any more.
Here is an example:
“Half the total amount payable under this agreement”
This £x is an important figure – find your finance contact and look up what it is. For the rest of this article, I will call this the 50% figure.
In a traditional HP contract, you pay the same amount every month for a set number of years. Here you will have paid the 50% figure after you have made half the monthly payments, or earlier if you paid a deposit.
In a PCP contract, the lump sum payable at the end is included in the total amount payable under this agreement. As a result, you won’t have paid the 50% figure until you are a lot more than halfway through the contract.
Whether you end up owing money after VTing the car depends on how much you have paid already:
- you have paid less than the 50% figure You can still VT your car. The termination clause does not say you have to have paid the £x before you terminate the agreement. When you VT the car you will owe the difference between what you have paid and the 50% figure.
- you have paid at least the 50% figure with no arrears Here you can hand back the car and you will not owe any more money at all. If you have paid more then the 50% figure, you will not get any money back.
- you have paid more than the 50% figure and you have some arrears You don’t have to pay the arrears before you terminate the agreement. When you VT the car you will still owe the arrears.
“Have taken reasonable care”
If you haven’t “taken reasonable care” you may have to pay extra to cover the cost of repairing any damage.
Lenders lose money when you VT a car so they may want to try to get as much back as possible from you by sending threatening letters and invoices alleging paintwork damage or scuffs to alloy wheels. You can reduce the problems you may have if you photograph the car before you return it.
If the lender ends your contract it usually costs you more!
The 50% figure cap on the amount you have to pay means that VTing a contract can save you a lot of money.
If your car is repossessed by the lender, you normally have to pay the whole of the total amount payable under the contract, less whatever the car is sold for. And the car may be sold at auction for less than you would hope.
National Debtline has a comparison in the Example Agreement at the bottom of its Hire purchase and conditional sale factsheet. That shows how much less debt you may end up with if you VT a contract compared to when the lender ends the contract because you have arrears.
If you aren’t convinced VTing will be cheaper for you, talk to National Debtline who can help you look at your alternatives and what they will cost.
Important – you can’t VT your contract if it has already ended
You can only terminate your contract if it is still going. So if the finance company terminates your contract because of arrears, you lose the right to VT the contract and – as explained above – this may cost you a lot more money.
If you can’t avoid arrears on your car finance, you may need to decide whether to VT your contract before the lender terminates it.
Don’t panic and rush into a decision if you just miss one payment. A lender has to follow certain procedures to terminate your contract and they have to send you a Default Notice giving you the chance to pay the arrears. The National Debtline factsheet looks at what the lender has to do.
But think about taking some debt advice as soon as you know you have a problem. You may need to act very fast if you receive a Default Notice so it’s good to have thought about your options beforehand.
How to VT your contract
Tell the finance company
You must tell the finance company in writing that you are terminating your contract. National Debtline has a simple template letter you can use here.
(If you don’t tell them in writing, this will be treated as though you have “voluntarily surrendered” your car, not terminated the agreement. Then you will not get the protection of the 50% figure being the maximum you have to pay.)
Send that letter by recorded delivery to the finance company’s address – it is set out in your credit agreement. Keep a copy of the letter and the proof of postage. You can send a copy by email, but send the letter as well.
If you are asked to sign something by the lender, it is best to refuse to do this. If you talk to the lender on the phone, use the phrases “terminate my agreement” or “voluntary termination”. Do not agree if you are asked if you want to surrender the car or have it repossessed – these are not VTing your car.
Returning the car
The lender will give you details of how to return the car. You may be asked to deliver it somewhere – this should not be an unreasonable distance away – or they may pick it up from your home. You should not be asked to pay a charge for this.
Read the Legal Beagles Guide. That covers everything you need to hand over, including servicing history and keys, as well as the importance of taking a lot of photographs to show that the car is in reasonable condition.
Settling money still owing
After the car has gone back, the lender will either confirm that you don’t owe any more money or tell you how much you do owe. If you don’t think their calculation is fair, you should challenge it – see below.
If it is fair, you then have a debt to settle. You can make an offer of monthly payments. National Debtline’s budget tool will suggest what you can afford. You can send a copy of the budget to the lender. The lender can take you to court for a CCJ if you do not pay what is owed, but most lenders won’t do this if you have made a reasonable offer of monthly payments.
Problems that may occur
Many people don’t have any problems if they follow the above process to VT their car. But here are some things that can happen.
For all of the following problems, National Debtline and the Legal Beagles Vehicle Finance forum are great resources to explain what is happening, your rights, generally support you and suggest what you can do.
“Lender says I can’t terminate the contract”
The lender may say you can’t VT it because you haven’t paid 50% yet or because you have arrears. This isn’t correct. You have a statutory right to do this, your finance company can’t have more restrictive rules.
Go back to the lender and say that you are terminating your contract under Section 99 of the Consumer Credit Act (1974) and that section 99 and section 100 of the Act do not say that termination is conditional on your having paid half the total contract amount or on not having arrears.
The lender may immediately agree that you can VT the car – they were just trying it on in the hope that you would be put off.
If the lender still refuses, put in a formal written complaint to the lender. At the end of the complaint say that you will be taking the complaint to the Financial Ombudsman if it is not resolved. If you are unsure about what to write, talk to National Debtline
You can take your complaint to the Financial Ombudsman as soon it is rejected by the lender in writing or after 8 weeks if you have not had a response by then.
Making it difficult to return the car
Lenders may make it harder or more expensive for you to hand back the car eg by:
- adding charges;
- insisting you complete their documentation; or
- saying you have to deliver the car to somewhere that is not close
If this happens, take some advice on how to tackle this. You may find some of the Legal Beagles template letters useful.
Unreasonable charges for damage to the car
If you think the amount you are being asked to pay to repair damage is unreasonable, you should challenge it. You are should write to the lender, arguing in detail about your car and what “fair wear and tear” is. Read the the Legal Beagles guide and post on the Legal Beagles forum for help.
Excess mileage charges
PCP contracts contain a mileage clause, where you will have agreed to pay so much per mile over the annual mileage agreed. When you VT the car, the finance company usually says that you should pay the excess mileage charge for the time you have had the car.
This is a grey area. Excess mileage charges aren’t included in the 50% figure in your contract, so some legal experts don’t think you have to pay them if you terminate your car finance. But I have seen Financial Ombudsman decisions on excess mileage complaints where the Ombudsman said it is fair that excess mileage charges should be paid when you VT.
It’s up to you if you want to challenge an excess mileage charge. You will need to be determined. You may spend a long while exchanging letters with the car finance company and its solicitors. And you may need to be prepared to go to court. You can get help on the Legal Beagles forum if you do want to challenge this.
But I want to keep my car!
In this case you don’t want to hand it back unless you have no other possible alternatives.
Read Were you sold a car on unaffordable finance? which looks at some of your other alternatives and take some debt advice.
If you have temporary problems because of Coronavirus, you can get 6 months of car finance deferrals and at the end of that you can ask your lender for other help, see Can you afford your car finance if your payment breaks have ended?
Covid-19 – can’t afford car finance?
The different types of car finance
Car finance – problems in an IVA
Jasmin Kay says
I have just spoken to Blackhorse about my vehicle which I financed from them feb 2020, they said as I have not paid 50% of the loan, I would have to pay a liability fee.. I am unsure what this is and how it would work… They said they can give my car to BCA and then there will be a default on my name if I don’t pay the remainder liability… can you please explain?
Sara (Debt Camel) says
I assume this is HP or PCP, not leasing.
I don’t know what a liability fee is – you need to ask them.
What is BCA?
If you haven’t paid 50%, then you will still owe that much. eg say you have paid £1000 and the 50% amount is £4,300. then you would still owe £3300 after handing back the car.
That is probably better than having the car repossessed and sold at auction – talk to national Debtline if you are unsure and want to talk through the details of your case.
If you do owe a balance, you will get a default if you can’t pay it.
But if you can’t pay the car finance, then nothing is going to protect your credit score.
SG says
Hi
What impact does a VT have on my credit score
Sara (Debt Camel) says
will you still owe money after the VT? Or have you paid over half?
Gareth says
I’ve just handed my car back to motonovo and they sent someone out to collect it.i have paid 29 out of 60 payments with a final payment of 400 so on my eyes I owe one more payment plus a percentage of the 400 final payment.because I took a 3 month holiday due the covid which I basically just added onto the end of my agreement.they are trying to say that’s arrears and I owe those 3 months as well as the 180 they added on for collecting the vehicle.i didn’t miss one payment it’s not arrears in my eyes it was all arranged.were do I stand on this I don’t want it affecting my credit score if I don’t pay it.i know I’m suppose to pay arrears but it’s not like I defaulted.
Sara (Debt Camel) says
I’ll have a think about this.
Gerard says
I have just done a Voluntary Termination of my vehicle with Motonovo finance and a company called Crystal Collections and theyve said my car has a few scratchs over the car but the biggest fee they have given me was for servicing as only had a partial service history and want £300 for this the whole bill is £591 which includes scratches over different panels and bumpers and a scrape to an alloy wheel. The car was registered in march 2013 so just under 8 years old what are my options?
Sara (Debt Camel) says
Read the Legal Beagles guide and post on the Legal Beagles forum https://legalbeagles.info/forums/forum/legal-forums/motoring-parking/vehicle-finance-and-issues for help.
Valentin Miscu says
Hello.
I am current VT my car with VauxhallFinance and at the moment I am paying 444.33£ per month and my contract is for 60 months. I have already paid 28 months and willing to pay the rest if 888.66£ to reach 50% of the agreement.
Vauxall wants to charge me 1207.03£ and I don’t lnoe for what. I do understand that for collecting my car they charge 100£ but what is the reason for the 239£?
They said is something related to tax rebate and excess of mileage.
The car is a vauxhall insignia 2017. When bought, the car already had 23.000 miles and at the moment it has 83.000 miles. That means that I have done 80 miles a day during the contract, which is my route to work and back.
Please help.
Sara (Debt Camel) says
Excess mileage is if you have been doing more miles than was in your contract. See Excess mileage charges in the article above as these can be challenged.
Tax rebate – not heard of that one.
You can ask National Debtline on 0808 808 4000 or ask on the Legal Beagles forum: https://legalbeagles.info/forums/forum/legal-forums/motoring-parking/vehicle-finance-and-issues
Lisa says
“you have paid less than the 50% figure You can still VT your car. The termination clause does not say you have to have paid the £x before you terminate the agreement. When you VT the car you will owe the difference between what you have paid and the 50% figure.”
In this scenario, if I also had arrears, would I also need to pay those on top of the amount to bring it up to the 50% figure..?
Sara (Debt Camel) says
I think you need a debt adviser to help you look at your specific situation – call National Debtline on 0808 808 4000 about this.
steve says
hello .I am 35 months into a 48 month pcp .according to my credit agreement its states I need to have paid 8k to he able to terminate my agreement. I have paid slightly over this and am under on the mileage, and also the car is in fantastic condition. so is it is simple as that ? im worried there is more to it than what I understand and will be hit with additional fees .am I being over cautious?
Sara (Debt Camel) says
It should be as simple as that if you have paid more than the amount in your credit agreement.
But I understand your caution. Can I suggest you talk to National Debtline on 0808 808 4000 about this tomorrow? This is something you want to get right.
Barry says
Is there a time period from when the car is collected to getting an invoice/confirmation of the vehicle being returned?
British Car Auctions (BCA) collected my car on the 8th January after I VT’d on a HP with BMW. I had nothing outstanding to pay and when the person collected he did not inspect the car and I didn’t sign anything. I have lots of photos of the cars condition and it had a full service history so I’m not expecting a charge.
That said I want to know the matter is closed and they’re not going to try and charge me unreasonable wear and tear costs. So any suggestions on how long I should wait before considering it closed?
Sara (Debt Camel) says
I am not aware that there is a set period. And a lot of things take longer with the country in lockdown.
Simon says
I am hoping to VT my car (PCP) as I’m struggling with the repayments.
Does the 50% figure take into account the deposit.
My total agreement was for £16,000 and my 50% figure is £8000. I put a £3000 deposit down (called “advance rental” on the paperwork), so am I right in thinking i can return the car once I’ve made £5000 worth of payments?
Weatherman says
Hi Simon
Yep, the deposit should go toward the 50%. It’s part of the total amount you’re due to pay under the contract.
Sara (Debt Camel) says
The National Debtline fact sheet https://www.nationaldebtline.org/fact-sheet-library/hire-purchase-debt-ew/ says:
“If you decide to terminate your agreement voluntarily and hand back the goods to the creditor, you should only have to pay up to half of the total amount payable under the agreement, minus sums that you have paid and sums that are due. Sums that you have paid include any deposit plus the instalments that you have paid. Sums due are any arrears or missed payments due at the time of termination.”
Diane says
Hi, my son lost his job due to corona in November, missed 2 payments from his car finance, they towed the car away. Next day we contacted finance place and paid the full cost of his loan £6.200.we havnt heard where the car is now, just a phone number to ring but noone there. What shall we do? Its so stressful
Sara (Debt Camel) says
Why didn’t he ask for a payment break?
He needs to talk to National Debtline urgently – 0808 808 4000.
Diane says
They said he couldn’t after 2 missed payments. He was only out of work 8 weeks, lost his job, fiance and managed to keep hold of his house, no electric etc. But now, he’s a carer, looking forward – I’m just concerned why noone has emailed to say where car is!? It’s lockdown, is that essential work even?
Sara (Debt Camel) says
I think that is unreasonable and he may have a good reason to complain and ask for compensation.
He needs to talk to National Debtline on Monday about what is happening at the moment and he should also ask them about whether the lender treated him fairly by repossessing the car so fast when he had asked for a payment break. They are open from 9am – 8pm.
Robert says
Hi, I have a HP agreement with Advantage Finance. The agreement is at a very high interest rate and the purchase price of the car was £7900. The total amount payable under the agreement is £14,000 with all the interest.
I have paid £3000 so far and I want to VT as I no longer need the car. They are telling me that if I was to VT, I would hand the car back and my “total liability would be £4000”. Does this mean I would need to pay £4000 on top of giving them the car? If that is the case then I would have paid in total £7000 for a £7,900 car that I would have only used for 1 year. This doesn’t seem right to me.
Thanks
Sara (Debt Camel) says
Does this mean I would need to pay £4000 on top of giving them the car?
That sounds right unless you paid a deposit? If you aren’t sure about the numbers, phone National Debtline on 0808 808 4000 and talk them through.
It may not seem a bargain but your alternative is to pay 11,000 over the next few years for a car you don’t need which will be worth depressingly little at the end of the agreement. So VTing may be your best option.
Cathy says
Hi Robert
Apologies in advance because i don’t know about your personal financial circumstances, but have you considered keeping the car until you pass the £7000 threshold. The benefits to this course of action is that you don’t have to find £4000 immediately and you get the use of the car until you VT it.
Just something to consider.
Kind Regards
Cathy
Sara (Debt Camel) says
That’s correct – but if he can’t afford the monthly repayments then it isn’t an option. VTing now will let the remaining money be repaid at a lower rate (though that will harm your credit record.)
Robert Dixon says
Thanks Sara and Cathy,
I have to come to terms with the fact that I signed up to a terrible deal in terms of the interest rate.
I have been looking at refinancing the car and managed to find a better deal that means I can shorten the remaining term from 4 years to 3 years, saving me over £3k in interest over the term and only increases my monthly payments by £10pm.
I just wish I had shopped around at the time!
Thanks
AGiles says
My son contacted KIA to advise he wanted to VT and return the vehicle and asked where he should deliver the car to. Despite numerous attempts to speak to them they continued to send him letters regarding non payment and now have served notice of court proceedings to recover the car and all outstanding amounts on the car. He had already paid 50% of the amount payable.
Sara (Debt Camel) says
Did he tell them in writing he wanted to VT it?
I suggest he talks urgently to National Debtline on 0808 808 4000 about his options.
Gabriele says
Hi, does the VT effect on my credit score? Can I return the car to dealer ,if I’ve paid 50% of the finance or pay the balance to reach the 50%, just because I don’t want anymore? Can they refuse to get the car ?
Do I have problems to get finance or loan on the future if I do the VT?
Thanks
Sara (Debt Camel) says
Can I return the car to dealer ,if I’ve paid 50% of the finance or pay the balance to reach the 50%, just because I don’t want anymore?
Yes if you inform them in writing you are VTing the car – read the article above in detail.
Can they refuse to get the car ?
No
Do I have problems to get finance or loan on the future if I do the VT?
And
does the VT effect on my credit score?
See https://debtcamel.co.uk/vt-car-part-exhange/
Amy says
Hi we are looking at VT for our car, am I right in thinking that we have to give the car back AND pay 50% of the total amount owed? They don’t sell the car and the money they get go towards the 50% payment?
Sara (Debt Camel) says
You have to pay 50% of the total amount of the credit at the start of the contract. So If the total amount payable under the contract was 16k half that is 8k. This number will be clearly stated in your finance agreement.
It sounds as though you think the car company is doing well if you VT a car? That isn’t the case!
Car depreciation is largest in the first couple of years of a contract. So the car finance companies normally lose money when you VT a car.
If you aren’t sure VTing your car is your best option, I suggest you talk to National Debtline on 0808 808 4000.
Lee says
I have a CCA HP agreement which will allow me to VT the agreement/car. However I still need to pay £6235 to be at the half paid amount. Will the finance company lodge this amount as a default at Equufax until I have paid this amount back? Do they have this right?
Sara (Debt Camel) says
How many months into the agreement are you? What are the monthly payments?
Are these too high for you to manage or is there some other reason you want to and the car back?
What are the rest of your finances like at the moment?
Lee says
I was looking at reducing the household bills and going to one car which will help greatly The payments are just about £390. It’s just my credit file that’s my main concern for remortgaging in a year time when it’s time to re-negotiate
Sara (Debt Camel) says
ok, then I think if you carry on paying the £390 until the balance is gone (16 monthly payments?) then they can’t default you.
Of course you may decide that in that case you may as well keep the car for the next 16 months and then VT it… On the other hand by getting rid of the car you gain on all the extra costs – car tax, insurance, petrol, servicing, parking etc.
Can I suggest you talk to National Debtline on 0808 808 4000 about the default issue?
Gabriele says
Hi, if I want do VT I own to the finance company 1,600£ to reach the 50% of the finance..
My car has a few scratches which definitely they will look on it and they will ask more money to fixing..
If they do that can I refuse to continue the process of the VT or once the process begin I can’t change mind…
My friend says that after the process start and they will collect the car , I will not see the car anymore and I have wait a big bill after they check the car .
Thanks
Sara (Debt Camel) says
why do you want to VT the car – can you afford the repayments? do you just want to save the money?
Gabriele says
I can afford the payment but I changed job and I prefer sell the car to save money but I still don’t know if is better the VT or sell the car privately which is very hard with the finance still on ..
Sara (Debt Camel) says
it’s illegal to sell the car privately – you don’t own it.
Your options are to carry on paying for the car and keep it, or VT it, they will take the car and you pay the rest of the half plus the amount to get the scratches fixed.
The length of time it takes to get this sorted isn’t really relevant is it?
Gabriele says
They will let me know how much have to pay for the scratches before or after I ll give the car back? Can I stop the process for VT if I m unhappy with the money they ask for the scratches ( and keep the car as usual)?
Sara (Debt Camel) says
You can take photos of the scratches so they can’t add on an unreasonable amount. But keeping paying for a car you don’t want for years because of the cost of a few scratches does make sense.
I suggest you talk to National Debtline on 0808 808 4000 about your options.
Gabriele says
Ok , thanks for all your replies and the hard work you do.
I ll thinking about and I will decide for what to do.
Thanks
K says
Hi Sara,
Great article once again!
I am looking at a VT. I’ll keep this simple and not go into too much detail. I have been quoted £780 remaining to pay if I VT my car. The finance company have been very helpful and have given reasonable terms to collect the car.
May question is around the remaining amount. They have said they will contact me to set up an agreement to pay the remaining amount. Are they likely to log this against my credit profile. I will be paying it back over three payments. I’m worried to hurt my profile if I don’t pay the balance in one go (which I can’t do).
Any thoughts?
Sara (Debt Camel) says
What were your monthly payments before the VT?
K says
Hi,
They were 200. I may be able to offer that, would that help?
Kelly says
Hi my partner voluntarily terminated his finance as he had paid half of the payments on the loan agreement. This was done in August. He has looked at his credit file today and the finance is still showing on his credit score and they have put a default payment for March. Between September and February there was nothing showing on the payment record. Could this be a mistake by his fiance company.
Sara (Debt Camel) says
Was this normal HP?
Or a PCP contact with a large payment at the end?
Kelly says
Hi it was normal HP I think
Sara (Debt Camel) says
Then this could be a simple mistake. he needs to talk to the finance company and ask them to correct this immediately.
If they say it isn’t wrong and that he has defaulted, he should ask why he hasn’t been informed of the money that is still owed and ask for an explanation of how this has been calculated. Then he can talk to National Debtline on 0808 808 4000 about the problem.
But fingers crossed this turns out to be an error!
Kelly says
Thank you for your help, hope its just an error on their part!