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Tips & advice

Can I end a car finance agreement early?

It may be possible to pay off a car finance deal or use a voluntary termination clause but is it a good idea?

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If you can’t afford to buy your new car outright a car finance agreement will loan you the money to buy the car allowing you to pay it back through a deposit and a series of monthly instalments. You might sign on the dotted line with every intention of making all those payments but circumstances can change. If you need a different car or you find that you can no longer afford the payments, you might need to end the finance deal early and there are various ways that you can do this. 

How to end a car finance deal early

Under the Consumer Credit Act 1974, the voluntary termination clause in finance contracts is available once you have paid off 50 per cent of the total finance amount. At that point you can return the car to the lender. 

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You can still exit the deal and return the car before you’ve paid 50 per cent by simply paying the difference including interest payments. There will also be termination fees involved in ending the deal early. 

It’s worth remembering that the 50 per cent barrier to activate the voluntary termination clause is 50 per cent of the total finance amount. That means the deposit, the monthly payments and any final payment including interest and fees. This means that you may not reach 50 per cent of the deal simply by making half of the monthly payments. 

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A further option is a voluntary surrender agreement. This allows you to hand a car back to the dealer without making 50 per cent of the payments. The dealer will then sell the car at auction but you will be liable to pay the balance of the finance deal if the sale price of the car doesn’t cover the outstanding amount.

You can also end a lease agreement early but it’s less straightforward than with PCP or HP. The lender can offer you an early termination fee and you can hand the car back once that is paid. 

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Is it worth ending your car finance agreement early? 

Whether getting out of a car finance deal is a good idea or not comes down to your own personal circumstances and the terms of your deal. If you are having trouble making repayments it’s a good idea to get some financial advice to work out the best course of action before trying to exit a finance agreement. 

If you have equity in the car, meaning that its value is higher than the money you still owe on the finance deal, you could pay off the deal and sell the car to access that cash. If you no longer need the car or are looking to move into a more affordable model, paying off the deal can make sense. 

If you’re going to have to take out a loan to pay off the balance of the finance deal it’s less likely to be a good financial move. It will come down to the total amount you will have to pay under each arrangement, including any penalty clauses and interest. If your car is in negative equity, meaning that you own more under the finance deal than the car is worth, paying off the finance is unlikely to be a good idea. 

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Head of digital content

Steve looks after the Auto Express website; planning new content, growing online traffic and managing the web team. He’s been a motoring journalist, road tester and editor for over 20 years, contributing to titles including MSN Cars, Auto Trader, The Scotsman and The Wall Street Journal.

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