Can I give my car back to the finance company?

Roman Danaev

13 April 2022

Life is a journey that doesn’t always go as planned. That’s why, before opting for car financing, it’s crucial to understand what can be done if you’re unable to make the monthly payments you signed up for initially or no longer need the vehicle.

While returning the car to the finance company is possible, it depends on the type of contract you have. Read on to find out whether this could be an option for you and what it would mean for your budget.

Can you return a car on finance?

The good news is that, should the need arise, some car financing companies allow their clients to return the vehicle before all the monthly payments are paid. Below, you’ll find an overview of the conditions various types of vehicle finance contracts have when it comes to giving the car back:

Personal loans

If you have a personal loan like a car finance option, it most likely has no ties to your vehicle. Thus, there’s no issue with selling the car if you no longer want it or if you can’t afford to pay the monthly repayments anymore. This way, you’ll be able to use the money received from the sale to pay back the loan.

Leasing (PCH)

With a personal contract hire plan (PCH), it’s usually possible to return the car back on finance whenever you decide. There are also pro-rata mileage limits and car condition requirements that depend on the lease company.

As long as your situation fits the agreement-specific criteria, you’ll be able to hand the car back to the car finance company and end the lease without affecting your credit score.

Hire purchase (HP)

HP car deals can’t be terminated until at least 50% of the amount is repaid. As there is no balloon payment at the end of the hire purchase, you must be halfway through the repayment plan to have the legal right to return the car to the finance company.

If you haven’t covered half of the financing amount by the time you’ve decided to complete a “voluntary termination” of the agreement, you will be obliged to pay off the remaining sum of the car price to reach the 50% mark of the financial conduct rules stated in the contract.

Personal contract purchase (PCP)

PCP financing follows the same rules as hire purchase agreements, except for one critical distinction. PCP requires the consumer not only to repay 50% of the overall amount, including interest and but also to cover the balloon payment at the end.

That’s why, when it comes to PCP, you may be further than halfway through the repayment process but still be short of the 50% of the sum you need to settle.

Besides, keep in mind that certain mileage limits and car condition requirements apply. Without those being followed, the finance company may reject your request to give back a car.

What happens if you return a car you financed?

Returning a car to the car finance company is a big decision to make. One major factor to take into consideration before taking action is your credit score. In addition to losing the car, your credit rating has a high chance of being affected. Besides, chances are you will owe the finance company significant.

Voluntary termination and how it affects your credit score

Voluntary termination of an HP or PCP deal is when a consumer wishes to end the agreement before paying off the full amount indicated in it. This arrangement is governed by Section 99 of the Consumer Credit Act 1974, which balances the rights of consumers with those of finance companies.

According to this law, the person who took out the finance option and no longer intends to continue with it should notify the lender in written form. Without such notice, they would be risking a situation whereby the ‘voluntary surrender’ and confiscation of the car back to the finance company is conducted.

While the voluntary termination of a vehicle finance contract is likely to be mentioned in your credit report, your score will probably not be affected in any way. After all, by returning the car on finance on time, before accumulating outstanding payments or significant debt, you are demonstrating that you are financially responsible.

Thus, if you find it difficult to keep up with covering monthly instalments, it’s critical not to default on them.

In case of a voluntary surrender, however, the finance company recovers the car back from someone who skips payments and sells it at an auction. In such an event, the debtor is liable to pay the transportation costs of the vehicle. Besides, if it doesn’t sell for a high enough price, the person would also have to settle the outstanding balance with the car finance firm.

Get in touch with our brokers for assistance

Returning a car back to the finance company is not always a simple process, but you don’t have to handle it alone At Carplus, our professional team of brokers is happy to help you resolve any doubts, offer assistance in topics related to new or used vehicle financing, and answer questions about giving the car back to the finance company. Reach out now and receive a detailed response in no time!

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