If you can’t afford your new car right away, an auto finance arrangement will lend you the money to buy the car allowing you to pay that back through a deposit and a series of payments. monthly installments. You may sign the dotted line with any intention of making all of those payments, but circumstances are subject to change. If you need another car or you find that you can no longer afford the payments, you may need to close your financing arrangement early, and there are different ways you can do this.
How to end a car finance contract early
Under the Consumer Credit Act 1974, a voluntary termination clause in financial contracts is available after you have paid off 50% of the total financing amount. You can then return the car to the lender.
You can still get out of the deal and return the car before you’ve paid 50% by simply paying the difference including interest payments. There will also be termination fees associated with early termination of the agreement.
It should be remembered that the 50% barrier to activating the voluntary termination clause is 50% of the total financing. That means the deposit, monthly payments, and any final payments including interest and fees. This means you may not get 50% of the deal by just making half of the monthly payments.
Another option is a voluntary surrender agreement. This allows you to return the vehicle to the dealer without paying 50%. The dealer will then sell the vehicle at auction, but you will be responsible for paying the balance of the financing agreement if the vehicle’s sale price does not include the outstanding amount.
You can also end the lease early but it’s less straightforward with PCP or HP. The lender may offer you an early termination fee, and you can return the vehicle once it’s paid.
Is it worth it to end your auto finance deal early?
Whether pulling out of a car finance agreement is a good idea depends on your personal circumstances and the terms of your agreement. If you’re having trouble paying off your debt, it’s a good idea to get some financial advice to figure out the best course of action before trying to get out of a financial arrangement.
If you have equity in the car, meaning it’s worth more than you still owe in the financing arrangement, you can pay off the deal and sell the car for that money. If you don’t need your car anymore or are looking to switch to a more affordable model, paying a deal might make sense.
If you’re going to have to take out a loan to pay off the balance of your financing deal, it’s less likely to be a good financial move. It will come down to the total amount you will have to pay under each agreement, including any penalties and interest provisions. If your car has a negative equity, meaning you own more in the financing deal than it’s worth, paying off the financing is unlikely to be a good idea.
