Can I give my car back to the finance company?

The good news is, yes you can return your car back to the finance company, but it depends on the type of finance agreement you have. Understanding how this works could help you decide if this is the best option for you and how it might affect your finances.

Each of these agreements comes with its own set of rules for returning the vehicle, so it’s important to check your contract. If you’re not sure about the details, your lender can explain your options and help you understand the next steps.

Some finance companies even let you return the car before you’ve made all the payments. Let’s take a closer look at how different types of finance agreements handle returning a car.

Personal loans

If you’ve taken out a personal loan for your car, it isn’t linked to the vehicle itself. This means you can sell the car whenever you want or need to. You can use the money from the sale to pay off the loan, avoiding further repayments.

Leasing (PCH)

With a personal contract hire (PCH), you can often return the car at any time. However, you’ll need to meet the terms set by the lease company, such as mileage limits and the car’s condition.

As long as you follow the agreement’s rules, you can return the car without harming your credit score.

Hire purchase (HP)

With an HP agreement, you can’t return the car until you’ve repaid at least 50% of the total amount. There’s no balloon payment at the end, but you must reach halfway through your repayment plan before you can voluntarily return the car.

If you haven’t hit the 50% mark yet, you’ll need to make up the difference before the finance company allows you to return the vehicle.

Personal contract purchase (PCP)

PCP agreements are similar to HP but with one key difference. In addition to repaying 50% of the total cost, you’ll also need to cover a balloon payment at the end of the contract. This payment can mean you’re further along in the plan but still haven’t reached the required 50%.

Keep in mind, mileage limits and car condition requirements must also be met. If not, the finance company may refuse your request to return the car.

Why return your vehicle to the finance company?

There are several reasons you might return your car to the finance company. A finance agreement can last for years, and during that time, your personal situation may change.

Financial difficulties are a common reason for this decision. A job change, a new home, or starting a family can all impact your ability to keep up with monthly payments. When that happens, handing the car back becomes a practical way to ease financial pressure.

In some cases, it's not just about money. Your car may simply no longer suit your lifestyle. Perhaps you bought a compact vehicle, but now, with a growing family, it doesn’t offer the space you need.

If your circumstances have changed, you have options. Depending on your agreement, you might return the car on finance, swap it for something larger, or make extra payments to finish your contract early. Each route offers a solution to fit your needs.

What happens if you hand a car back on finance?

Returning a car to the car finance company is a big decision to make. One key factor to consider is your credit score. Along with losing the car, your credit rating may take a hit, depending on your contract and payment history.

You may also still owe the finance company a large amount, even after returning the vehicle. Be sure to check the terms of your agreement before making this choice.

How to hand the car back to the finance company?

If you've decided that returning your financed car is the best option, here’s a simple guide to help you through the process:

1. Review your finance agreement – Go through your contract to understand the terms, especially regarding voluntary termination and any fees.
2. Contact your finance provider – Inform them of your decision and explore options like ending the agreement early or switching to a new vehicle.
3. Prepare your paperwork – Gather key documents, such as service records and any relevant communications about the car’s condition.
4. Get the car inspected – If there are any faults, have a trusted mechanic inspect the vehicle and document the issues.

By following these steps, you'll be better prepared for a smooth return process.

Voluntary termination and how it affects your credit score

Voluntary termination lets you end an HP or PCP deal before paying off the full amount. This right is protected by Section 99 of the Consumer Credit Act 1974, ensuring a fair balance between you and the finance company.

To terminate the agreement, you must notify the lender in writing. If you don't, the car may be repossessed through a "voluntary surrender," which could harm your credit.

Although voluntary termination will appear on your credit report, it usually doesn’t affect your score. By returning the car on finance on time and avoiding missed payments, you’re showing financial responsibility.

However, if you miss payments and the car is repossessed, the finance company may sell it at auction. In this case, you’ll need to cover the costs of repossession and any remaining balance if the car sells for less than what’s owed.

Get in touch with our brokers for assistance

Returning a car back to the finance company can be complex, but you don’t have to face it alone. At Carplus, our expert brokers are here to help with all your vehicle finance questions, whether it’s about new or used cars or returning a financed vehicle. Get in touch today, and we’ll provide clear, detailed guidance quickly!