Voluntary termination: handing your car back halfway through finance

The short answer: voluntary termination, or VT, lets you hand a car back and walk away from Hire Purchase or PCP once you’ve paid half of the total amount payable. That’s the figure on your agreement which includes the deposit, interest, fees and, on PCP, the balloon. It’s a legal right under the Consumer Credit Act 1974, so the lender can’t refuse it. On a £20,000 car with a £2,000 deposit at 9.9% APR, you reach the half-way point after 22 payments on Hire Purchase, but only after 34 on PCP.

This guide covers how VT works, how to find your half-way point, what happens if you haven’t reached it, and how it compares with the other ways out of a car deal.

What the law says

Two short sections of the Consumer Credit Act 1974 do the work:

• Section 99 lets you end a regulated Hire Purchase or conditional sale agreement at any time before the final payment, by telling the lender.
• Section 100 caps what you owe when you do. You must bring your payments up to half of the total price, pay any arrears, and you may have to pay for damage if you haven’t taken reasonable care of the car. If you’ve already paid half or more, you pay nothing else.

“Total price” is defined in section 189 of the Act as the total sum payable under the agreement. In practice it’s the total amount payable printed on your paperwork. Lenders have to tell you about the right on the agreement itself, usually in a box headed “Termination: your rights”, along with the exact amount you’d need to have paid.

Most PCP deals are written as Hire Purchase or conditional sale agreements with a balloon at the end, so they’re covered too. The Financial Ombudsman has confirmed several times that the balloon counts as part of the total amount payable when working out the half.

Finding your half-way point

Look for “total amount payable” on your agreement and halve it. Then add up what you’ve paid so far: deposit, part-exchange value, monthly payments and any fees. When the second number reaches the first, you can hand the car back and owe nothing more.

The chart shows why PCP takes so much longer. On Hire Purchase the total amount payable is £23,697, so half is £11,849, and payments of £452.02 get you there in month 22. On PCP the total is £25,087 because it includes the £8,000 balloon. Half is £12,543, and smaller payments of £314.30 mean you don’t reach it until month 34 of 48.

A bigger deposit gets you there faster, because it counts towards the half from day one. A bigger balloon or a longer term pushes it later.

If you haven’t paid half yet

You can still use VT, but you have to pay the gap. A year into the Hire Purchase deal above you’d have paid £7,424, so you’d need to find about £4,424 to hand the car back. Two years into the PCP deal you’d have paid £9,543, a gap of about £3,000.

Lenders will often let you pay the gap in instalments. Sometimes it’s cheaper to keep paying for a few more months until you cross the line. If the car is worth more than your settlement figure, selling it may leave you better off than VT. More on that below.

How to do it

1. Check you’re eligible. The agreement must be regulated Hire Purchase, conditional sale or PCP, and you must be up to date with payments or ready to clear any arrears.
2. Work out where you stand. Halve the total amount payable and compare it with what you’ve paid. Most lenders will confirm the figure if you ask.
3. Write to the lender. Say you’re ending the agreement under section 99 of the Consumer Credit Act 1974 and want to return the car. Email is fine if the lender accepts it. Keep a copy.
4. Get the car ready. Clean it, gather both keys, the service book and the V5C if you hold it, and photograph every panel, the wheels, the interior and the mileage.
5. Arrange collection. The lender sends an inspector or agent. Be there if you can, and check their condition report before you sign it.
6. Keep the paperwork. Ask for written confirmation that the agreement has ended and nothing more is owed, and check your credit file afterwards.

Condition and mileage

Section 100 lets the lender claim compensation if you haven’t taken reasonable care of the car. Normal wear for the car’s age and mileage is fine. Most lenders use the BVRLA fair wear and tear guide as their yardstick: small stone chips and light scuffs are usually acceptable, but dents, kerbed alloys, torn seats and missing service history may not be.

Mileage is less clear. PCP deals set an annual mileage and charge so many pence a mile over it if you hand the car back at the end. When you hand it back under VT, though, the law only allows a claim for failing to take reasonable care, and lenders don’t all treat extra miles the same way. If you get a mileage bill after VT, ask the lender to explain the legal basis in writing. If the answer doesn’t satisfy you, the Financial Ombudsman Service is free.

Voluntary termination vs the other ways out

The one to watch is voluntary surrender. It sounds similar, but it gives you none of the protection of section 100. The car is sold, often cheaply, and you’re billed for whatever is left. If a lender offers it, ask instead about voluntary termination by name.

Before choosing VT, check what the car is worth. If a dealer would give you more than the settlement figure, selling it puts the difference in your pocket, which VT never does.

Your credit file

Using VT isn’t a missed payment or a default. You’re using a right the law gives you, so it shouldn’t be recorded as a debt problem. The account will show as terminated or settled. Some car finance lenders do look at it when you next apply, so if you’re planning another car soon, it’s worth asking a broker how lenders treat it. Missing payments while you decide does much more damage, so keep paying until the agreement has ended.

Common mistakes

• Counting months instead of money. Half the term isn’t half the total amount payable, especially on PCP.
• Forgetting the deposit. It counts towards the half.
• Stopping payments before the lender confirms the agreement has ended.
• Agreeing to voluntary surrender when you meant voluntary termination.
• Handing back a car worth more than you owe. Selling or part-exchanging would have paid you the difference.
• Not photographing the car at collection.

Next step

Put your deal into the car finance calculator to see the total amount payable and halve it. If you’re still choosing finance for your next car, it’s worth knowing how much a balloon payment delays your exit, and whether a personal loan suits you better.

This is general information, not legal or financial advice. Check the termination box on your own agreement for the exact figure.