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.
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 interest you are paying may be 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 (deposit and monthly instalments) 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 Checklist: What you should do before the vehicle is handed over section in this 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 right, 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 End of Contract Charges section in 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,
The different types of car finance
Car finance – problems in an IVA
A simple guide to your debt options
Suzanna Walker says
This is a quite dangerous action to take because the car will be in a worse condition than when you bought it purely through wear and tear. The car will have to have a full service history to show that you have maibtained it. If it hasnt then an insorction could show that monor defects are apparent. Every stone chip, small dent , chipped windscreen, faulty lights, worn brake pads etc will impact on its condition. In PCP’s you may be restricted to average mileage., the Ombudsman thinks it is fair to be charged for excessive mileage so its not so cut and dried.
I would definately contact a specialist first, have the car cleaned and serviced and carefully photograph evry area of the car in daylight, including sills, bumpers, and tge interior, before you take any action on exercising your rights under Section 99.
Cathy says
Hi
Can i please ask a question about VT. If the monthly payment for the car is made up of a finance company payment and a personal loan (due to the negative equity from the previous part exchange car) What would happen to the personal loan payment if I opted to VT the car?
Sara (Debt Camel) says
Is the personal loan mentioned in the Finance agreement? Specifically does it form part of the Total Amount Payable?
Cathy says
Hi Sara
Yes one payment is deducted monthly. The annual statement has just arrived and the loan is split into 2 elements. A Hire Purchase agreement and a Personal Loan agreement. They both have the same agreement number.
Sara (Debt Camel) says
Sorry you need to go back to the actual legal agreement and see if the negative equity is included in the “Total Amount Payable” in which case it will also form part of the 50% figure given under Your Termination Rights
Andy says
Hi,
Does this by any chance also relate to logbook loans also?
The reason I ask is, I had a logbook loan a number of years ago, where I borrowed in the region of £6k, against my car. Only to pay back in the region of £18k / £12k interest.
I am going to go to FOS, if I do not receive a response in 8 weeks, but I did notice the small print in the contract, mentioning terminating the contract, if I paid in the region of £9k.
As it stands, I have paid the entire £18k in full, and received by logbook back, so thankfully now no ties. Now just disappointed in myself!
Sara (Debt Camel) says
Normally logbook loans are not structured legally as HP agreements. But if yours is (check the legal agreement) then it will include a TERMINATION: YOUR RIGHTS clause.
Chris says
Re Suzanna Walker’s statement, when a finance company agree a VT, they generally send out a driver to collect the car who will take the car to an agreed auction. The driver will look around the car, making notes on condition that both parties sign for. The car doesn’t have to be like new but does need to be in good condition. The customer also pays for the collection from the house/garage to the auction.
A decent car dealership will have a smart repair service to provide a cheaper way to get the car up to a decent condition. They don’t usually check the mechanical side of things other than to make sure things work, but any car owner should have maintained their own car for their own peace of mind. The level of brake wear won’t be a factor.
My advice, having worked in the car industry for 20 years, is to try and part exchange if you can, even if you break even. The dealership will normally try and get a car in px rather than allow it to go off to an auction, especially if it’s the same brand.
Although the majority of finance cases have the VT option it really should be used as a last resort, rather than the first option.
Sara (Debt Camel) says
“The customer also pays for the collection from the house/garage to the auction.” any charge there can be challenged. Of course if it’s low and the finance company isn’t trying add on an unreasonable amount for repairs then often someone doesn’t mind.
Part exchange can work, but anyone with negative equity may be better off VTing and getting a new contract, see https://debtcamel.co.uk/vt-car-part-exhange/.
Chris says
I’m not trying to argue your points, just pointing out real world dealings. Regarding the collection charge, I missed out that you have the option to take the car to the designated auction if you wish or are able but in the agreement letter that the finance company send agreeing to the VT it gives you the choice.
The same with the amount for repairs, hence I mentioned the garage might have a smart repair tradesman who can do such repairs cheaper than the finance company might charge you. Obviously there has to be some responsibility on behalf of the customer otherwise everyone could hand cars back without any care taken at all.
In your link you also mention that the VT goes onto the finance company record but you’ve not seen evidence of this affecting someone’s next agreement. I’m just giving your readers a real world heads up that it can affect your next agreement, the finance company do not have to accept any agreement, or they can put some restrictions in place because of the risk of VTing again, like a bigger deposit or restricted terms. If you are close to part exchanging it is better to do that, however you can, with some deposit to clear the negative equity or with a dealer contribution. Depending on the car most dealers would rather take a car in part exchange rather than wait for a car and agreement to be VT’d as that can also take time.
Sarah says
I have a query. I PCP a car from Mercedes, I have had it for a year now, my monthly payments are 262.52 a month, its only been a year and I have paid 3105 so far. I am having financial difficulties at the moment and I have this car for 48 months however for me to be able to VT I have to of paid at least 10k in total which at that amount leads me in to my 40th month. Is there anyway round Voluntary Terminating or Surrendering my contract earlier at this point?
Sara (Debt Camel) says
As the article above says, you can VT the car now and only owe the remainder of the 10k (or whatever the half way amount is in your documentation).
If you can’t afford the repayments this may be a better option for you than having the car repossessed and sold at auction as it you MAY owe less if you VT. Talk to National debtline on 0808 808 4000 about your options.
Christine says
I would like some advice for my son. My son (unwisely) took a car finance out from a sub prime car finance company. The payments were made regularly for 16 months then he had a problem and missed a payment.
The car has been immobilised. My son rang and explained the situation and said that he would pay the £160 the following week only to be told he would need to pay over £400 due to their charges-which seem extortionate.
Can he challenge the charges? Ideally he would have liked to keep the car but the purchase price was in excess of the value.
If he terminated the finance could he come to an arrangement to pay the arrears off at an affordable amount.?
He needs the car for work, I have suggested that he gets a cheap runabout and returns the car but the company have told him that he will have to have missed 3 payments before they will collect it. I suppose that means 3 more sets of charges too?
Sara (Debt Camel) says
“My son rang and explained the situation and said that he would pay the £160 the following week only to be told he would need to pay over £400 due to their charges-which seem extortionate.” that sounds unfair – are these charges set out in the terms & conditions?
“but the company have told him that he will have to have missed 3 payments before they will collect it” he has the right to VT the car as the article above explains. He will only have to repay the rest of the 50% amount that is set out in his finance agreement – has he looked and seen how much that is? the finance company cannot refuse to collect the car or charge for collecting it.
If he can’t repay the amount owing and needs a payment arrangement, that will affect his credit record. But if the current loan is unaffordable, there are no options that will not harm his credit record. I suggest he should talk to national Debtline about VTing the car and if he has any other options.
Hannah says
Hi, our car has developed a mechanical fault with the oil pressure. The repairs are going to end up meaning we’ve spent more on the car this year than it’s worth but it’s in negative equity. If we are to look into VT how would I approach the subject of the fault with the finance company? As this option is likely to be a lot less than my settlement figure.
Sophie says
I have recently VT my car with Kia / Santander I have paid the equivalent of half the amount as on pcp which is all they said I owed. They’ve cancelled my direct debit. Now have sent me a letter saying I need to pay a cancellation fee is this a thing??? Why didn’t they mention it when I paid the rest off ?
Thanks
Sophie
Sara (Debt Camel) says
I think you should reply that you have paid half of the total contract value as set out in your contract and they are not allowed to charge you an additional fee.
Adele says
I have contacted my finance company to voluntary terminate. I havemt signed anything, can I change my mind and not go through with it?
Sara (Debt Camel) says
I suggest you phone them up and ask. They may well be happy for you to withdraw from this and carry on paying them.
Sianyyyyy says
Hi Sara,
I am hoping you can advise. I have had my affordability complaint with MotoNovo finance upheld. They agreed that due to income and outgoings etc they should not of lent me £5,000 towards my car. They have agreed that once i arrange to return the vehicle they will unwind all the payments made plus statutory interest. The car is an 09 plate with a few dents etc and i have only 10 months remaining on the current contract. What i want to know is would Motonovo agree for me to keep the car as the value would of depreciated significantly and agree to refund interest or payments etc. I’m worried that upon me handing the car back they may make deductions due to dents etc from use of the car? Would i be better handing it back or trying to keep it to avoid having to try and fund a new car and not get back all the payments? Or do i send to FOS to see what they think.
Thanks
Sian
Sara (Debt Camel) says
So they are offering to refund the interest you have paid plus 8% and write off the balance owed? How much have you paid to Motonovo so far, ignore whether they have called this interest or principal, just how much have you paid them?
Also is your car finance HP or PCP – was there a “balloon” payment to be made at the end?
Sianyyyyy says
Hi Sara,
There words are “in light of the issue you experienced, we will unwind the agreement once we have been allowed to collect the vehicle. Once we have collected the vehicle, you will receive back all of the payments you made towards the finance plus statutory interest, and i will remove the finance from your credit profile completely”.
There is a small balance due at the end of £303.63 and it is HP. I have paid £5,040.83 there is a balance of £1,911.41 remaining.
Thanks
Sara (Debt Camel) says
So you have already repaid more than you borrowed.
Did you pay a deposit?
How much do you think your car is worth now, if you tried to sell it?
would you be happy to keep the car or would you prefer to get more money – obviously this depends on how much more money, but in general do you like the car or are you keen to get a different one for about the same value?
Sianyyyyy says
I did not pay a deposit.
Looking on we buy any car the car is only worth around £2,000 or less around £1,800, giving it back would put me at a disadvantage until i could get another vehicle.
I would be happy to keep the car.
Sianyyyyy says
Ideally if they are proposing to return all payments to me upon forfeiture of the car I would rather keep the car and have returned the difference between what i paid for the vehicle and what the car is worth now. So as I have paid £5,040 and the car is worth £2,000 i would rather the difference returned and the remainder written off and removed from my file. I don’t know whether this would be a good option?
Sara (Debt Camel) says
OK, so as you haven’t paid a deposit, i think you can reply to Motonovo that as the loan is unaffordable, they should remove the interest from the contract and you should just repay what you borrowed. You have already paid £5,040 and you only borrowed £5000. So you have already completed paying back the loan without the interest. So a fair settlement is that the contract should be ended and you should keep the car – as that is what should happen on the completion of the HP agreement.
I don;t think they are going to give you back the drop in value of the car – when you buy a car you accept that its going to drop in value over the years and that is what has happened.
Leisha Owen says
I recently got a used car on conditional sale, however, due to unforeseen circumstances, I no longer need the car. Is it possible to VT now and keep paying the monthly instalments until half of the amount owed is paid? Or will I have to pay the full amount?
Sara (Debt Camel) says
You will owe the full amount if you VT, but can make an arrangement to pay monthly.
Lauren says
Does VT effect my credit rating?
Sara (Debt Camel) says
No, see https://debtcamel.co.uk/vt-car-part-exhange/ for details.
Tom says
Hi. I have a PCP agreement through Santander Consumer Finance. I have not had the vehicle long (about 6 months), but my personal circumstances have changed and I won’t be able to continue with the repayments. I understand I can VT the car, however I will not be able to afford the monies outstanding with regards to the 50%. What will happen?
Sara (Debt Camel) says
You will have an unsecured debt that needs to be repaid and a default on your credit record if you can’t repay it.
Tom says
What if I set up a reasonable payment plan with the creditor?