Do you know if you can cancel your car finance early? In this article, we will consider your rights of voluntary termination and will also take a look at how you can cancel your car finance early. According to UK law, you have a right to cancel some types of car finance early. This is referred to as voluntary termination; it shouldn’t be confused with voluntary surrender. Read on to learn more about the types of car finance agreements that you can cancel early and how to do so.
Understand Your Rights to Canceling Car Finance Agreement Early
Section 99 of the Consumer Credit Act 1974 states when you can voluntarily cancel your car finance agreement early. This section covers both new and used cars. The essence of this law is to protect those that have taken out a finance agreement but couldn’t repay their monthly payments at some point.
This can occur due to different reasons like loss of job or changes in financial circumstances, or your car doesn’t start, or your vehicle might have faced a general accident that makes it difficult to pay one’s car finance agreement. The law covers both HP finance and PCP finance. These types of finance agreements differ slightly in the way they work.
It is one of the most popular forms of car finance. This type of finance requires you to pay an initial deposit, and then a series of repayments every month. After these monthly payments, you will be given two options. If you like to own the vehicle, you will need to pay a balloon payment. The car will be yours once you pay the balloon payment. Most people then opt to start another PCP agreement.
How to End Your PCP Agreement Early?
You can end PCP agreements early provided you have paid 50 percent of the total amount to the finance company. The total amount includes any interest and fees that you need to pay. It will also include the balloon payment.
It is important to pay the balloon payment because it implies you probably won’t pay 50 percent of the total agreement by the middle of your monthly payment schedule. In other words, you are unable to get halfway through the finance agreement and you decide to stop. If this is the case, you need to consider the balloon agreement as well.
Apart from the 50 percent repayment, you must also have taken good care of the car. This implies that the car must not be damaged (apart from the normal wear and tear). If you meet all these conditions, you will be allowed to cancel the agreement.
What Happens if You Haven’t Reached the 50 Percent Mark?
If you have not repaid 50 percent of the total amount of the finance, you can still end the car finance agreement early by paying off the difference. For instance, if the total finance amount is £50,000 and you have paid back £20,000, you still need to pay an additional £5,000 to reach the 50 percent mark. If you have paid back more than 50 percent, you can cancel your PCP agreement early but the extra you have paid will not be refunded.
This is another popular form of car finance agreement. With this type of agreement, you need to pay an initial deposit with legal protection. The deposit is usually around the 10 percent mark. The deposit will then be followed by a series of monthly repayments.
Once you are through with your monthly repayment schedule, the car will be yours. This type of finance agreement does not have balloon payment (unlike the PCP agreement). HP finance agreement is a form of secured loan. Its security is the car you’re purchasing. Hence, the car can be taken away if you don’t comply with the monthly repayments.
How to End Your HP Agreement Early?
Just as you can end a PCP agreement early, you can also end an HP agreement early. This implies that you must have paid 50 percent of the total amount of the finance back to the finance company.
However, you need to reach the 50 percent repayment schedule point middle of the agreement. If you have not paid back 50 percent of the total amount of the finance, you need to do so, then the agreement will be cancelled. Apart from the 50 percent repayment, the car must also be in a good condition (just as we stated in the PCP agreement).
How voluntary Cancelation affects your credit score?
Does cancelling your car finance early affect your credit score? This section will provide an answer to this question. Although cancelling your car finance early (i.e. voluntary termination) may be found on your credit file, it is unlikely to have any effect on your credit score or on your ability to request finance in the future.
If you are finding it difficult to repay your car finance, you may be tempted to stop paying; this makes the payment fall into arrears. Ensure you avoid this if possible because it can negatively affect your credit score; thereby making it more difficult for you to get finance in the future. It can also make you incur high-interest charges.
Hence, considering these reasons, it is better to opt for voluntary termination.
What You Should Know Before Applying for a Car Finance Agreement?
Before you sign any car finance agreement, ensure you do your homework and also read in-between the lines. Some agreements charge additional fees before you can cancel them early. Hence, it is better you know these before agreeing. The details of these will be found in the contract.
You may want to cancel your car finance early due to different reasons. Some of them include the following:
- A change in your financial circumstances makes it impossible to keep paying the monthly repayments.
- You want to go for a new car and opt for a new finance agreement elsewhere.
- You don’t want the car anymore.
No matter what your reason, ensure you understand what you’re getting yourself into so that you can make the right decision.