Can I give my car back to the finance company?

Your finance agreement might have outlasted your budget, or the car might no longer fit your life. Either way, you're probably wondering whether you can hand the keys back and walk away, and what that would cost you. The answer depends on the type of finance you have and how much of it you've already paid.

Can you give a financed car back to the finance company and under what conditions?

Yes, you can give a car on Hire Purchase (HP), Personal Contract Purchase (PCP) or conditional sale back to the finance company at any time through voluntary termination, a legal right under Section 99 of the Consumer Credit Act 1974. The lender can't refuse it, but you'll owe up to half of the total amount payable.

Other types of finance work differently:

• Personal contract hire (PCH): you can usually return a leased car early, but you'll pay an early termination fee set by your contract.
• Personal loan: there's nothing to give back, because you own the car. Selling it and repaying the loan is the way out.

How does voluntary termination work?

Voluntary termination (VT) caps what you owe at 50% of the total amount payable, which is everything you'd pay over the agreement, including interest, fees, any deposit and, on PCP, the balloon payment. If you've paid less, you top up the difference. If you've paid more, you won't get the extra back.

You'll also owe any missed payments (arrears) and charges for damage beyond fair wear and tear. To use it:

1. Ask your lender for the total amount payable and what you've paid, so you know your top-up.
2. Give written notice that you're ending the agreement under Section 99, and keep a copy.
3. Return the car in reasonable condition, with the keys, logbook and service history, and take dated photos at handover.

What is voluntary surrender?

Voluntary surrender (VS) is a negotiated return where the finance company sells the car, usually at auction, and you pay whatever the sale doesn't cover. It isn't a legal right and there's no 50% cap, so it usually costs more than VT. If the car sells for more than you owe, you pay nothing further.

Can I give my car back on finance if I can't afford it?

Yes, voluntary termination is open to you if you can't afford the payments, but talking to your lender first could let you keep the car or leave more cheaply:

• Payment plan or payment holiday: FCA rules expect lenders to help customers in financial difficulty, though a reduced plan can show on your credit file.
• Refinancing: a lower APR (the yearly cost of borrowing) could cut your payments, though a longer term can mean more interest overall.
• Part-exchange: the dealer settles your finance, but any negative equity (owing more than the car's worth) rolls into the new deal.
• Settle, then sell: you have a legal right to clear the finance early with your settlement figure, and selling before you settle breaches the agreement because the lender owns the car until then.

Simply stopping your payments is the costliest way out. Once you've paid a third of the total amount payable, the lender needs a court order to repossess the car, but before that it can take it back after a default notice.

We can check whether refinancing could lower your payments using a soft search, so there's no impact on your credit score (finance is subject to status). Free debt advice is available from debt charities and the government-backed MoneyHelper service, and Breathing Space can pause most interest, charges and enforcement for 60 days.

What happens if you can't afford car finance anymore?

If you can't afford car finance anymore and stop paying, the missed payments go on your credit file and the lender sends a default notice giving you at least 14 days to catch up. After that, the agreement can be defaulted and the car repossessed, which needs a court order once you've paid a third of the total amount payable. Any shortfall after the car is sold is still yours to pay, which is why voluntary termination is usually the cheaper exit.

How much does it cost to give your car back?

Giving your car back through VT costs half the total amount payable, minus what you've paid, plus any arrears and damage charges. Both examples assume no deposit or fees.

Hire Purchase (HP) example

On HP, the 50% mark lands near the halfway point in time, because there's no balloon payment. A 5-year agreement at £300 a month has a total amount payable of £18,000. You'd reach the £9,000 mark at month 30 and could hand the car back owing nothing more.

Personal Contract Purchase (PCP) example

On PCP, the 50% mark comes much later, because the balloon payment counts towards the total. A 3-year PCP at £300 a month with a £10,000 balloon has a total amount payable of £20,800, so the mark is £10,400. After 18 months you'd have paid £5,400, leaving a £5,000 top-up.

Other charges

• Damage: dents, scuffs or a cracked windscreen beyond fair wear and tear.
• Mileage: under VT, the lender can only charge for failing to take reasonable care of the car, which high mileage isn't automatically.
• Collection: some lenders charge to collect the car, so ask first.

How do you give your car back at the end of a PCP?

You give your car back at the end of a PCP by telling the finance company you won't pay the balloon payment, then returning the car. There's nothing more to pay if it's within the mileage allowance and passes the fair wear and tear inspection, and you can challenge any charge you disagree with. If the car's worth more than the balloon (positive equity), part-exchanging it can be better than handing it back.

Can handing your car back affect your credit rating?

Handing your car back only hurts your credit rating if it comes with missed payments, a voluntary surrender or a default. VT may show as a terminated agreement that other lenders can see, but it isn't recorded as a missed payment or a default.

Can I cancel my car finance and give the car back?

No, cancelling car finance within 14 days under Section 66A of the Consumer Credit Act 1974 ends the finance but not the purchase, so you keep the car and repay the amount borrowed, plus interest, within 30 days. To give the car back, you'd need the dealer's agreement, a fault, or voluntary termination. If you bought online or by phone without visiting the dealer, the Consumer Contracts Regulations 2013 may let you cancel the purchase itself.

Can I give a faulty car back to the finance company?

Yes, you can reject a faulty car bought on finance under the Consumer Rights Act 2015, and on HP or PCP your claim is against the finance company, because it legally sold you the car. Rejecting it ends the finance and returns your deposit and payments, less any deduction for use.

• First 30 days: you can reject the car for a full refund.
• 30 days to 6 months: the fault is presumed to have been there at delivery, and you get one repair or replacement before you can reject.
• 6 months to 6 years: you can still claim, but you'll need evidence the fault was there at delivery.

If the finance company says no, or gives no final response within 8 weeks, you can take your complaint to the Financial Ombudsman Service for free.