Voluntary termination of car finance agreements are a handy choice for those times when your circumstances change and you need flexibility. Let's dive in together and break it down. 

What is Voluntary Termination in Car Finance?

Voluntary Termination is a legal right under Section 99 of the Consumer Credit Act 1974, which allows customers to end their car finance agreement early if certain conditions are met.

Reasons for Choosing Voluntary Termination in Car Finance

Several scenarios may lead you to consider Voluntary Termination:

• Change in Financial Circumstances: If you find yourself unable to meet the monthly repayments.
• Desire for Lower Repayments: Seeking to switch to a finance option with more affordable repayments.

Who is Eligible for Voluntary Termination?

To be eligible for Voluntary Termination, you must have paid at least 50% of the total amount payable under the car finance agreement. This includes any additional charges and arrears (outstanding payments on your file) that may apply.

Difference Between Voluntary Termination and Voluntary Surrender

It's important to distinguish between Voluntary Termination and Voluntary Surrender. The latter usually occurs due to missed payments and can lead to vehicle repossession, whereas Voluntary Termination is a mutual agreement between lender and borrower.

The Process of Voluntary Termination

1. Initiating Voluntary Termination

Contact your lender directly to discuss and initiate the Voluntary Termination process. Each lender may have specific requirements and procedures, so you will need to see what the specifics are for your finance agreement. 

2. Criteria for Voluntary Termination

Ensure you meet the criteria set by the lender for the voluntary termination. This often includes the vehicle being in a good condition, and having paid a certain percentage of the total amount of the loan amount. 

3. Finalising the Termination

You will need to settle any outstanding payments or charges and return the car in a good condition. If the condition of the car does not mean the standards set by your lender, it is likely that you may be charged additional fees.

Types of Car Finance Agreements and Voluntary Termination

Hire Purchase (HP) Car Finance 

With HP car finance agreements, you’re liable for 50% of the total amount payable, plus any payments that are outstanding and lender charges.

Personal Contract Purchase (PCP) Agreement

For PCP car finance agreements, the 50% includes the total amount payable, interest, fees, and potentially part of the balloon payment.

Conditional Sale (CS) Agreement

Similar to a HP agreement, with a CS car finance agreement, you’re liable for 50% of the total amount payable on your agreement, plus any outstanding payments or charges.

Does Voluntary Termination Affect My Credit Score?

A common misconception is that Voluntary Termination will negatively impact your credit score. However, if you’ve kept up with repayments, it shouldn’t affect your score.

If you are worried about falling behind with payments, and would like some unbiased advice on how you could get back on track, there are some free services out there! Check out MoneyHelper, StepChange and the Government’s Money and Pensions Service (MAPS). 

If you're considering Voluntary Termination of your Car Finance agreement, it's essential to review your contract and directly contact your lender for guidance.