Voluntary Termination of Car Finance: What You Need to Know
Voluntary termination is a legal right that lets you hand a financed car back and walk away from the agreement once you have paid at least half of what you owe. It exists to protect people whose circumstances change partway through a finance agreement, and it applies whether you have hire purchase or PCP. This guide covers how it works, what condition the car needs to be in, what it means for your credit, and how it differs from voluntary surrender.
Voluntary termination is a right under Section 99 of the Consumer Credit Act 1974. It allows you to end a hire purchase or PCP agreement early by handing the vehicle back to the finance company, once you have paid 50% of the total amount payable under the agreement. The total amount payable includes the cash price of the car, interest, and any fees, not just the amount you originally borrowed.
Once voluntary termination is completed, you have no further payments to make and the agreement ends. You do not get any money back, and you no longer have the car, but your obligations under the agreement are over.
Voluntary termination, covered on this page, is the statutory right under Section 99 of the Consumer Credit Act, available once you have paid 50% of the total amount payable. It ends the agreement with nothing further owed.
Voluntary surrender is a different situation, used when someone wants or needs to hand the car back before reaching that 50% threshold, often because of financial difficulty. Handing the car back before the 50% point does not carry the same legal protection, and a balance can still be owed afterward. The two situations are handled very differently, and it matters which one applies to you.
If you have not yet reached 50% of the total amount payable and are considering handing the car back, particularly if you are struggling with payments, see our guide on voluntary surrender of car finance, which covers that situation specifically, including your rights and what happens to any remaining balance.
The 50% threshold is based on the total amount payable under the agreement, which is shown on your original credit agreement document. This figure includes the cash price of the vehicle, all interest over the full term, and any fees such as the option to purchase fee. It is not the same as 50% of the number of monthly payments, since interest is not spread evenly, more interest is typically paid earlier in the agreement.
To find out exactly where you stand, contact your lender and ask for a statement showing how much you have paid toward the total amount payable, and how much more you would need to pay to reach the 50% threshold if you are not quite there yet. Some people choose to make a lump sum payment to reach the threshold if they are close, in order to access the voluntary termination right.
AutoMoney Trust customers can request this information through the existing customers page.
The law requires the vehicle to be returned in reasonable condition, sometimes described as "fair wear and tear" condition. This means normal signs of use are expected and acceptable, but the car should not have damage beyond what would be expected for its age and mileage.
Lenders typically check for things like unrepaired accident damage, missing parts, excessive wear to tyres or interior, and outstanding service requirements. If the car is returned in worse condition than this standard, the lender can charge you for the cost of putting it right, even though the agreement itself has ended. It is worth getting the car professionally valeted and addressing any obvious issues before handing it back, and taking dated photographs of its condition at the point of return.
Voluntary termination itself is recorded on your credit file as the agreement being settled through this route, rather than as a default or missed payment. It is generally viewed more favourably than defaulting on an agreement, since it is a recognised legal process rather than a failure to pay.
That said, it is still the early ending of a credit agreement, and some lenders may view a history of voluntary terminations as a factor when assessing future applications, particularly if there is a pattern of agreements being ended this way. A single voluntary termination, used as intended when circumstances genuinely change, is not something that should cause lasting difficulty.
For more on how car finance affects your credit generally, see: How car finance can affect your credit score.
Yes, the right to voluntary termination applies even if you have missed payments, as long as you have reached the 50% threshold of the total amount payable. However, any arrears that built up before the termination are still owed, voluntary termination ends the agreement going forward but does not erase a debt that already exists at the point of termination.
If you are in financial difficulty and considering voluntary termination as a way out, it is worth speaking to your lender about your full situation. They may be able to discuss the arrears separately from the termination itself, and getting this sorted before handing the car back avoids confusion about what is owed afterward.
Voluntary termination can be particularly useful if you are in negative equity, meaning the car is worth less than the amount left to pay. Because voluntary termination ends the agreement based on the 50% threshold rather than the car's current value, you are not required to make up any shortfall between the car's value and the outstanding balance. This is one of the main reasons people choose voluntary termination over selling or part-exchanging a car in negative equity.
For a comparison of voluntary termination against selling or part-exchanging, see our guides on selling a financed car and how to part exchange a car on finance.
Returning a financed car because it is faulty is a separate matter from voluntary termination. If a car develops a serious fault, you may have rights under the Consumer Rights Act 2015 to reject the vehicle or have it repaired or replaced, and your finance company may share responsibility with the dealer under Section 75 of the Consumer Credit Act. This applies regardless of how much of the agreement you have paid, and if successful, can mean ending the agreement with no further liability and potentially a refund of payments already made, which is different from voluntary termination where no money is returned.
If you are dealing with a faulty financed car, see our guide on problems with a financed car for how this process works.
To begin voluntary termination, contact your lender directly and tell them you wish to exercise your right under Section 99 of the Consumer Credit Act. Putting this in writing creates a clear record of when you made the request. Your lender will confirm whether you have reached the 50% threshold and, if so, arrange collection or return of the vehicle.
AutoMoney Trust customers can start this process through the existing customers page. If you are looking ahead to your next car once the agreement ends, our apply for car finance page covers our hire purchase finance from £4,000 to £25,000 over 36 to 84 months with no deposit required.
With an AutoMoney Trust hire purchase agreement, legal ownership of the car transfers to you only after you have made all of your monthly payments and paid the £10 option to purchase fee at the end of the agreement. Until then, the vehicle remains the property of AutoMoney Trust.
Although you won't legally own the car during the finance term, you are responsible for its day-to-day running costs, including vehicle tax, insurance, MOT, servicing, and maintenance. As the finance provider owns the vehicle until the agreement is complete, you cannot normally sell, transfer ownership of, or make significant modifications to the car without our permission.
It is also important to keep up with your car finance payments, as missed payments could lead to arrears and, in some circumstances, the vehicle may be at risk of repossession if the agreement is not brought back up to date.
Once you have made your final monthly payment and paid the option to purchase fee, legal ownership transfers to you, and the car becomes fully yours with no further finance obligations.
Yes, your car is likely to lose value during the finance agreement. Most cars depreciate over time, meaning they gradually lose value as they age. For most used cars, depreciation continues throughout a Hire Purchase agreement, so the vehicle is typically worth less at the end of the finance term than when it was purchased.
Depreciation is important because the total amount payable on a car finance agreement includes the amount borrowed, interest, and any applicable fees. As a result, the total amount you repay over the agreement may be higher than the vehicle's market value by the time your finance ends.
Depreciation can also increase the risk of negative equity. If you decide to settle your car finance early or sell the vehicle before your agreement has ended, the car's current market value may be lower than the outstanding finance balance. In this situation, you may need to pay the difference before the agreement can be settled.
The rate at which a car depreciates depends on several factors, including its age, mileage, condition, service history, brand, model, and market demand. Keeping your vehicle well maintained and within reasonable mileage can help preserve its value over time, although depreciation cannot be avoided completely.
Some drivers also choose to take out GAP insurance, which may help cover the difference between an insurer's payout if the vehicle is written off and the remaining balance on the car finance agreement. This can provide additional financial protection particularly during the earlier years of a hire purchase agreement, when the outstanding finance may be higher than the vehicle's market value.
Car finance can affect your credit score positively or negatively depending on how you manage your agreement. Making regular, on-time payments can help build a positive credit history and demonstrate responsible borrowing, while late or missed payments can negatively affect your credit score and make it more difficult or expensive to access credit in the future.
If payments are not made on time, they may be reported to credit reference agencies, which can lower your credit score and make future borrowing more difficult or potentially more expensive.
When you apply for car finance, a lender may carry out a hard credit search, which appears on your credit file and can cause a small, temporary change to your credit score. This is a normal part of the application process and helps lenders assess whether finance is affordable and suitable for you.
For more information about how applications are assessed, read our guide on Credit Checks for Car Finance.
The length of your car finance agreement can have a significant impact on both your monthly payments and the total cost of borrowing. Choosing a longer finance term, such as 60 or 84 months, spreads the cost of the vehicle over a greater number of payments. This can make your monthly payments more affordable, but it may mean you pay more interest overall throughout the agreement.
A shorter car finance term, such as 36 months, usually results in higher monthly payments because the balance is repaid over a shorter period. However, paying the agreement off sooner can reduce the overall amount of interest paid, making it a potentially lower-cost option over the full term.
When choosing the right finance term, it is important to consider your budget, monthly affordability, and how long you plan to keep the vehicle. The best option is one that allows you to comfortably manage your payments without putting unnecessary pressure on your finances.
AutoMoney Trust offers car finance terms from 36 to 84 months, giving you flexibility to choose an agreement that suits your circumstances. Use our car finance calculator to compare different term lengths and understand how your monthly payments and overall costs could change before applying.
