Voluntary Termination of Car Finance: How It Works

Voluntary termination lets you hand back a vehicle on hire purchase or PCP and walk away, once you’ve paid half of the total amount payable. It’s a legal right under the Consumer Credit Act, and it can be a way out if your payments have become unaffordable. This guide explains how the 50% rule works, how to apply and what it could cost.

What is voluntary termination (VT)?

Voluntary termination is your right, under sections 99 and 100 of the Consumer Credit Act 1974, to end a hire purchase agreement early and return the goods. PCP agreements are a form of hire purchase, so the right usually applies to them too.

Unlike settling early, you don’t keep the vehicle. Instead, your liability is capped: you never have to pay more than half the total amount payable, plus any charges for damage.

Who can use voluntary termination?

You can usually use VT if:

• your agreement is hire purchase or PCP (it doesn’t apply to personal loans or leasing)
• your agreement is regulated by the Consumer Credit Act, which covers most personal and sole trader agreements
• the lender hasn’t already ended the agreement after a default notice has expired

Agreements with limited companies, and some business agreements over £25,000, aren’t regulated, so VT may not apply. Your agreement should include a section headed “Termination: your rights”, which confirms whether you have this right.

The 50% rule explained

The 50% rule is based on the total amount payable: everything you’d pay over the full agreement, including the deposit, interest, fees and any final payment. It’s shown on your agreement.

With a PCP, the final payment is part of the total amount payable, so it usually takes longer to reach the halfway point. Check your annual statement or ask your lender how much you’ve paid and what’s left to reach 50%.

How to voluntarily terminate step by step

1. Check your agreement. Confirm it’s regulated HP or PCP and find the total amount payable.
2. Work out where you stand. Ask your lender how much you’ve paid. If it’s under half, you’ll need to pay the difference.
3. Write to your lender. State that you’re exercising your right to voluntarily terminate under section 99 of the Consumer Credit Act. Send it by a method you can prove, such as recorded delivery or the lender’s secure email.
4. Arrange the return. The lender will tell you how and where to return the vehicle, or arrange collection.
5. Inspection. The vehicle is inspected for damage beyond fair wear and tear.
6. Final statement. You’ll be told about any shortfall or charges, and the agreement is closed.

National Debtline has a free template letter.

Costs and consequences

• Shortfall to 50%. If you haven’t paid half, you’ll owe the difference.
• Damage charges. The lender can charge if you haven’t taken reasonable care of the vehicle. Normal wear and tear for its age and mileage shouldn’t be charged.
• Collection costs. If the lender has to collect the vehicle, there may be a charge.
• Your credit file. VT is a legal right and shouldn’t be recorded as a default, but some lenders mark the account as voluntarily terminated, which future lenders may see.
• No refund. If you’ve paid more than half, you don’t get the extra back.

Alternatives to voluntary termination

• Settle early if you can afford to and want to keep the vehicle.
• Sell the vehicle if it’s worth more than your settlement figure, as you’d keep the difference.
• Part-exchange for a cheaper vehicle, being careful not to roll over negative equity.
• Talk to your lender about a payment arrangement if your difficulty is temporary.

Voluntary termination FAQs