Car finance agreements typically last around 3 to 4 years and a lot can change over that period of time. For instance, you may have become a parent and need a bigger car or you may have a new job where a longer commute is involved.
It can be tricky to know what to do in many cases, so we’ve got together with our sales team to find out all the different options you have if you need to terminate your finance agreement early.
The short answer is YES! You can terminate your finance agreement early and it doesn’t matter whether you have a car on Hire Purchase (HP) or Personal Contract Purchase (PCP).
First of all, you’ll need to get a "finance settlement figure" from your lender. This will determine the cost of the car that’s not yet been paid off as well as the final “balloon payment” if you have a PCP. This can usually be obtained with a quick phone call with the finance company. We'd recommend getting a written version of this sent to your email.
Your car will then need to be valued to find out the valuation of the car vs the remaining payments. Head over to our online valuation tool to get your valuation today.
Then you’ll need to do some working out – you’ll need to subtract the "finance settlement figure" from your car’s valuation price which will determine the amount of equity in your car. If you have a positive figure then great! You can use this amount of money as a deposit towards your new car. However, if you have a negative figure (known as negative equity), that amount of money will need to be paid on top of your car’s new price.
Voluntary termination may also be an option if you have negative equity on your vehicle, allowing you to hand back the vehicle without paying the negative equity. You can usually voluntary terminate if meet the criteria for the "Halves Rule". In order to terminate the contract with the Halves Rule, you must pay or have paid at least half of the total amount owed to the finance company. A common misconception of this rule is that you can terminate the contract when you are halfway through the contract itself. This rule however only comes into place when you have paid half of the total amount owed.
In order to terminate the contract with the Halves Rule, you must comply with certain rules. These include bringing up to date any payments that are owed to the finance company, returning the vehicle in a reasonable condition and in some cases write to the finance company explaining the action you wish to take.
The Thirds rule is another protection rule that you may not be aware of. The thirds rule is there to give you further protection once one third of the total price is paid. It means that the finance company would need a court order to repossess the goods.
If you’re thinking about changing your vehicle and are mid-way through your finance agreement, why not give one of our friendly team a call? We’ll be able to talk you through your different options and find the perfect deal for you!