Voluntary Termination of Car Finance – Your Rights Explained

What Is Voluntary Termination and How Does It Work?

Voluntary termination of car finance is a right in law. It is set out in Section 99 and 100 of the Consumer Credit Act. This means you can end your car finance agreement before it runs out. You need to give the car back, and you will not owe the remaining balance. You must first pay at least half of the total amount in the credit agreement and car finance agreement. So, you can end your car finance early if you follow the rules.

This rule is about the main types of car finance.

• Hire Purchase (HP contracts)
• Personal Contract Purchase (PCP agreements)
• Conditional sale agreements

It usually does not work for personal contract hire or car leasing. Voluntary Termination (VT) is there to help people who have financial difficulties or whose financial situation changes. This gives you a way to get out of a car finance contract if you cannot keep up with your monthly payments. This idea is there so you do not get stuck in something that you cannot afford.

Eligibility for Voluntary Termination on PCP or HP

To use VT you must:

• You must pay at least 50 percent of the total amount you owe. This amount includes interest, fees, and with PCP deals, the final balloon payment.
• You have to give the car back in reasonable condition. The car should show fair wear that fits its age.
• You must pay off all the money you owe. You can end the deal even if you still owe some money, but what you owe will still need to be paid.

The 50 Percent Rule (Halfway Point)

Your VT threshold is based on the total amount you have to pay, not only the cash price. With PCP, the balloon payment is part of this total amount. This means you often need more time to reach the halfway point than you would with HP.

Worked example (PCP):

If you pay the £1,450 shortfall, you reach the VT limit. At this point, you can use your legal right to end the agreement.

Voluntary Termination vs Voluntary Surrender

Some people think these two are the same, but they are not. Each one leads to different consequences.

• Voluntary termination (VT): This is a statutory right. You can give back the car after you have paid half of the total amount. You do not have to pay more unless there are extra charges because of damage or excess mileage charges on PCP.
• Voluntary surrender: You can return the car at any time. But you will still need to pay the outstanding debt. The lender will sell the car and take the sale money away from the outstanding balance. If you still have something to pay, you have to pay it. Excess mileage and additional charges can also be in this.

For many people who can use it, VT is the best option. It helps you stay away from problems that keep coming up.

How to Calculate Your Voluntary Termination Figure

1. Look for the “total amount payable” in the finance agreement.
2. Split this total amount into two to find the halfway point.
3. Add up how much you have paid so far. Be sure to add the deposit and any fees.
4. A shortfall happens if you take the halfway point and subtract the amount you have paid. If you get a number bigger than zero, that is your shortfall.

Ask your finance provider to tell you the exact VT figure. They should give you this in writing. The provider should also say how they got the amount for your agreement.

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Step-by-Step Voluntary Termination Process

Step 1 – Confirm Eligibility

Check if your payments add up to at least half of the total amount. If they do not, you need to think about how to pay the rest that is missing.

Step 2 – Send a VT Letter

Write to the car finance company. Tell them you are using your rights under Section 99/100 of the Consumer Credit Act. Be sure to add your name, address, agreement number, and contact details. Ask the company to send you written confirmation about what will happen next. Using a clear VT letter template UK format for your car finance request will help stop any delays from the car finance company.

Step 3 – Arrange Return or Collection

The lender will tell you to pick up or drop off the item. It is normal to talk about when you will pick up or return it. You can tell them some times that work for you. Make sure you get their answer in writing.

Step 4 – Document the Condition

Before you return the car, look at how it looks and works. Write down what you see. This can help you not get extra charges for excessive wear.

• Take photos of your car from each corner and side when the light is good.
• Get close-up pictures of the wheels, windscreen, lights, and every panel.
• Take pictures inside to show the seats, dashboard, carpets, and roof lining.
• Get a clear photo of the mileage with the car’s ignition turned on.
• Take photos of the service history papers and both keys.

Step 5 – Keep Evidence

Save all emails and letters that you get. Keep your VT notice with you. Hold the lender’s acknowledgment. Keep the collection papers and the inspection report too.

What Documents and Information Will I Need to Provide?

Get ready to start the voluntary termination process. This can help make things easier for you.

• Finance agreement (at this step, you have to read the voluntary termination clause. You need to check the totals.)
• VT letter (you need to write a formal letter. It should say Section 99/100 in it.)
• Proof of ID (a driving licence or passport will be enough.)
• Proof of address (a bill you got recently or your bank statement is good for this.)
• Vehicle documents (bring the V5C if someone asks for it. A MOT, service history, and warranty book may also be needed.)
• All keys (make sure you get the spares if you have them.)
• Mileage reading (check and note the current miles, especially if there is excess mileage with PCP.)
• Condition evidence (take to time to snap some photos of the car with the date showing for proof.)

Some finance companies might ask you to sign a VT acknowledgment form before they come to pick up the car.

Fair Wear, Tear, and Excess Mileage Charges

You have to bring the car back in good condition. There can be some fair wear. If there is excessive wear such as big scratches, dents, ripped seats, missing service stamps, or illegal tyres, you may get extra charges.

On a PCP agreement, you might still need to pay excess mileage charges. This can be the case even if you use VT. It all depends on what is in your PCP agreement.

Quick checklist (fair wear)

• Small stone chips and light scratches are okay if they are not big.
• Tyres must have the legal tread depth. The wear on the tyres should be even.
• Windscreen should not have any large cracks in the area where the driver looks out.
• The inside of the car must not have rips, burns, or very big stains.
• Service records need to be up to date when your finance provider asks for them.

What Happens After Returning the Car?

• The lender takes a look at the vehicle.
• You get a report, and if there are any extra costs, you will also get an invoice for additional charges.
• Your credit file will show that you ended the agreement by voluntary termination.

VT is not set as a default. It does not itself hurt your credit score or give any negative impact on your credit record. But future lenders will see the way you closed the account when they look at your credit history. This could change what they think of you if you apply for future finance applications. It may affect how your future finance applications go.

Impact on Credit Score and Credit File

• Credit score: Ending car finance with VT will not change your credit score by itself. But if you have late or missed car finance payments, your score can go down.
• Credit report: Your credit report will show that you closed the account using VT.
• Credit rating: Lenders might ask if you ended your car finance with VT before. They may also want to know why you did it, for example, if you did not want to have an outstanding balance and used VT the right way.

Fees and Costs You Might Still Pay

• A shortfall when you do not reach half of the total amount that needs to be paid.
• Excess mileage charges if you are on PCP.
• Additional charges for excessive wear or if some things are missing. This can be, a spare key.
• Any unpaid amounts that were there at the time you did VT.

Settlement vs Voluntary Termination

HP vs PCP: How the VT Experience Differs

Lender Responses, Complaints, and Ombudsman Route

• Acknowledgment: The lender has to let you know they got your VT notice. They should tell you what will happen next, and do this in a fair amount of time.
• If you dispute charges: If you do not agree with the fees, you should talk with your finance provider. You can also make a formal complaint if needed.
• Ombudsman: If things are not sorted out after up to eight weeks, or if you get a final answer that does not help, you can send the issue to the Financial Ombudsman Service for a review from outside.

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Are there any common mistakes people make when trying to use voluntary termination for car finance that I should avoid?

Yes. A lot of people do not check if they have paid at least half of the total amount before sending a VT letter. This leads to extra charges. You have to pay what is missing. A mistake some make is giving the car back without photos or noting the miles. If you do not have clear pictures or proof of mileage, there can be trouble about what is fair wear. There might be issues with excess mileage charges.

Many drivers get confused between voluntary termination and voluntary surrender. If you go for voluntary surrender, you must pay the outstanding balance after the car is sold. Starting the voluntary termination process with overdue payments is risky. The lender will not forget these unpaid amounts. If you do not read your finance agreement well, you can miss important details. A PCP agreement may have rules about final balloon payments.

It is good to read everything and check each thing to avoid problems with your finance agreement, PCP agreement, extra charges, and other costs.

How Compare Car Finance Helps You Avoid VT Next Time

Before you get ready to change your car again, it is a good idea to look at a comparison journey where you can see all the car finance offers in one spot. When you check things like the loan amount, interest rate, and the time options right away, it makes it easier for you to:

• Pick a finance agreement that fits your budget right now and in the future.
• It is better to pick shorter terms. This lets you not feel stuck all the way until the end of your contract.
• Do not carry over any negative equity if you can help it.
• Go for deals that let you make extra payments with no penalties.

Making a good choice now with your car finance can help you avoid using voluntary termination of your car finance agreement later. If you pick the right car finance, you look after both your money and your car. A smart move with your finance agreement helps you feel better about your choices in the future.

FAQs About Voluntary Termination of Car Finance

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