When Can You Cancel Car Finance?
Voluntary termination gives you the right to cancel your car finance contract early. There are different rules for each type of car finance, including personal contract purchase, hire purchase and personal leasing.
If you have taken out a car finance contract but your financial circumstances have changed and you want to cancel it because you can’t keep up with repayments, or you just want a new car, you’ll want to know if you can cancel your contract.
The good news is that it’s possible to cancel a car finance plan, but there are variations on when you can cancel and how much you will have needed to pay for different types of finance. For more information on the different finance options read our types of car finance explained guide.
In this article we’ll explain when you can cancel personal contract purchase, hire purchase finance and personal leasing.
Cancelling a personal contract purchase
Personal Contract Purchase allows you to pay for your car over a set of monthly instalments. These payments don't cover the total cost of the car however.
At the end of the contract you can either return the car or, if you want to own the vehicle, you can do so by making a "balloon payment" which will cover the remaining value of the car.
If you decide you don’t want to continue with your PCP contract, you have the option of returning the car if you have paid 50% or more of the total contract costs. This is known as voluntary termination.
Once you have paid 50% or more of the costs you can send the car back to the leasing company as long you have kept it in a reasonable condition. Wear and tear is fine, but the car must be free from damage, otherwise you may face further costs.
You can also pay off the entire contract early if you want to keep the car. You will need to pay a settlement figure to your finance provider to do this, and this will normally be cheaper than continuing to make the monthly payments and the balloon payment.
Be aware that if you do want to cancel your car finance agreement on a PCP, it’s likely that you’ll pay an early termination fee to pull out of the contract – this should be specified in your contract.
If you are thinking of paying a settlement figure to pay off your PCP agreement early, do bear in mind the current value of the car. If your car has depreciated more than expected, you could end up paying far more than the car is currently worth. In this situation, it may be better to continue making the repayments until you are in a position to return the car.
Can I return the car if I haven’t paid 50% of the PCP contract?
If you haven’t paid 50% of your PCP contract’s costs, you can make up the remainder with a lump sum payment. There’s no need to continue repaying monthly until you reach the halfway point.
What If I’ve paid more than 50% of the PCP?
If you’ve paid more than 50% of the PCP, you can still cancel your contract, but you won’t be refunded the excess that you have paid. Because of this, if you are planning to cancel your contract the ideal time to do so could be when you have paid 50% of the contract off.
Cancelling a hire purchase plan
Hire Purchase allows you to spread the cost of a car over monthly repayments. At the end of the contract you can return the car or pay a small "option-to-purchase" fee to own it.
If you want to retain ownership of the car, but don’t want the financial commitments of monthly repayments, you can choose to pay the remaining contract costs with one payment known as a settlement figure. You will need to get this settlement figure from your finance provider, which will cover all the costs you need to pay to end the contract early and own the car.
Before proceeding with an early termination, check your contract to see if you need to pay an early exit fee- this is typically the case.
Again if you want to cancel your contract early and return the car, you must have paid at least 50% of the contract costs. Without a balloon payment, you’ll reach 50% of the contract’s cost at around the halfway point of the repayment schedule, making it easier to know when to cancel.
This information for ending hire purchase early also applies to conditional sale agreements.
Can I return the car if I haven’t paid 50% of the HP contract?
If you haven’t paid 50% you can make up the difference by paying a lump sum, as with PCP finance. Similarly you must return the car in good condition to transfer the car back to the leasing company.
What If I’ve paid more than 50% of the HP?
If you’ve paid more than 50% of the HP, you can still cancel your contract and return the car, but you won’t be refunded for any additional payments you have made.
Cancelling a personal leasing plan
If you want to cancel a personal leasing plan early and return the car, you should be aware that you may need to pay the full amount remaining on your leasing agreement.
Make sure you find out what this cost would be before ending your plan. If you are struggling to pay the leasing costs then its best to speak to your provider to see if they can do anything to support you with your monthly repayments.
Can I cancel my car finance deal within 14 days?
The Consumer Credit Act gives you 14 days to withdraw from a credit agreement. This applies to all forms of car finance, and stands whether you applied online, on phone or in person.
A 14-day cooling off period begins when you agree to the contract to an amount at or below £25,000. For higher loan amounts, check the terms and conditions. Loans above £60,260 don’t include a right to withdraw.
Does cancelling a car finance deal harm my credit rating?
Cancelling your contract won’t harm your credit rating because it was made in agreement with the leasing company. A voluntary termination might appear on your credit file, but it shouldn’t affect your credit rating or impact your ability to apply for finance in the future.
If you are struggling to keep up with your credit plan, it’s best if you can continue paying rather than falling into arrears, as this can harm your credit score and impact your ability to apply for finance in the future. So if possible, try and keep going until you reach the 50% mark, when you can return the car.
Will my ability to secure a mortgage be reduced by ending my contract early?
Your ability to get any form of finance, including a mortgage, is based on your credit profile. Your profile should not be harmed by cancelling your car finance contract, as long as you haven’t missed any payments.
So, if you are having financial issues it could be best to opt for voluntary termination rather than going into arrears.
Avoid going into arrears at all costs, because this, rather than cancelling your finance, could harm your credit rating and your ability to get a mortgage.
Compare car finance deals
Before entering any car finance deal, it is vital you compare deals and know you can afford to keep up with repayments. Just because you are approved credit, doesn’t mean you should take it.
Finally, ensure you are aware when you will have paid 50% of the costs, so you can hand the car back to the leaser, should you so choose.
John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more