PCP car finance: can I get out early?

6 Jan 2020 | NEWS

  • Drivers can leave PCP schemes early through Voluntary Termination
  • You must have paid at least 50 percent of the balance to end the contract
  • Voluntary Termination shouldn’t negatively affect your credit rating

Car finance may allow you to get the keys to a car that you wouldn’t otherwise be able to afford, but it also comes with a number of stipulations that you must follow. Depending on the type of finance, these could include the distance you can travel in the car and the condition you must return it in.

Exceed the agreed mileage limit or return the car with damage, for instance, and you could be stung with additional charges. Fail to meet the monthly payments, meanwhile, and you could see serious damage to your credit rating. This doesn’t mean that you can’t hand the car back and stop the PCP before the end of your finance agreement, though.

Voluntary Termination allows you to return a PCP-funded car early

If you’re having real issues keeping up the monthly payments on your car – or your situation has drastically changed and the car is no longer suitable – it is possible to end a PCP contract early.

Voluntary Termination rights mean that as long as you have paid more than 50 percent of the cost of the car, interest and charges owed – or make up the difference – you can return the vehicle to the finance company. This works in a similar way for Hire Purchase schemes.

Be aware, however, that you won’t get anything back if you’ve paid more than 50 percent of the total of the car and any interest or charges. However, should the car be worth more than the sum of the remaining finance payments, you could be better off paying a settlement figure to buy the car and selling it on – provided you can access the funds to do this.

Early Repayment option lets you keep or sell on the car

It is also possible to pay off PCP schemes early. You’ll need to get a settlement figure from the finance provider, which shows how much you’ll have to pay to tie up the PCP agreement early. This leaves you with two options – to pay the settlement figure and keep running the car or to sell it.

The former could be wise if the settlement figure is less than the total of the remaining monthly payments. Meanwhile, selling on the car might make sense if you are strapped for cash but can get the funds together to buy it and sell it on for more than the settlement figure.

Avoid getting into arrears; renegotiate finance terms if necessary

Whatever your financial situation, it is always a good idea to avoid falling behind with payments. It is much better to opt for voluntary termination or early repayment than to chalk up a number of missed payments, as these can harm your credit rating and make it harder to borrow money in future. Although Voluntary Termination will appear on your credit file, it should make little or no difference to your ability to secure finance in the future.

The rules are different for PCH leasing and you might need to pay off the remaining leasing costs should you return the vehicle early, meaning that there is no point in handing the keys back, as it’s likely that you’ll pay the same amount but have no car to show for it.

It is possible to renegotiate monthly leasing charges with the finance provider, however. The company may be willing to lengthen the lease, in order to cut monthly payments, or find another set-up that might be more affordable for you.

Thank you to Parkers Guides for their comprehensive help in understanding Car Finance

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