Among the many questions we get asked at carwow, plenty cover ending car finance deals early. There’s often a lot of confusion about how this works and whether it’s even possible. We’re here to explain the different ways you can end your car finance deal before the agreed period is up.
There are lots of reasons why you might want to end a car finance package early – it may be that you decide it’s not the one for you, or maybe your requirements change and you need a more practical car, or it might be that you can’t afford the monthly repayments. Whatever the reason, you shouldn’t fear – simply read our guide to understand how to leave your finance deal.
Ending a PCP early
Personal contract purchases, or PCPs, are one of the most common ways of financing a new car. There are plenty of benefits and, if you intend to change your car every three years or so, it may well be a way to get a better car than you think you can afford.
If you’ve already repaid half the total amount owed (the amount borrowed plus fees and interest) then you’re free to hand back your car under a clause in your contract called ‘voluntary termination’. For example, if you bought a car worth £30,000, with 5 per cent interest and a fee of say £100, your total amount owed will be £31,600 – if you’ve paid more than £15,800 so far, you can hand the car back.
That’s quite a lot of money to have paid back, especially if the guaranteed future value of the car is reasonably high. If you’ve not reached this 50 per cent figure, you’ll have to pay the difference – though this will be much less on agreements with a larger initial deposit. Anything over the 50 per cent figure you won’t get back, so think carefully if you’re near the end of your contract anyway.
If you’d prefer to repay the PCP early, all you need to do is call the finance provider for a settlement figure – the amount of money needed to end the agreement. Once this is paid, the car is yours so you can either keep it (your settlement figure might be less than the cost of carrying on monthly payments) or sell the car – it might actually be worth more than the settlement figure, especially if it’s a high-demand model.
Ending a HP agreement early
Ending a hire purchase agreement is actually pretty similar to PCP. If you’ve repaid half the agreement’s total cost, you can hand the vehicle back or, if not, then you can make up the difference – again, if you’ve paid anything over 50 per cent, you won’t get it back. The credit agreement you sign when taking the car will show its total price and what you’ll have to pay for returning it.
If you’re paying it off early, then usually all you’ll have to pay is the outstanding amount, plus the lowest of the following three amounts. If you’re repaying less than £8,000, there should be no fees at all.
1. One per cent of the amount repaid early.
2. 0.5 per cent of the amount repaid early if there are fewer than 12 months remaining.
3. The remaining interest.
Ending a lease early
Unfortunately, if you’re leasing your car, it’s possible you’ll have to pay off the costs of the whole lease if you return the car early. It’s important to consider just how much this will be because you’ll effectively be continuing to pay for a car you no longer have.
If you’re having trouble paying monthly leasing costs then it might be possible to extend the lease with the finance provider. Extending it should lower your monthly costs – this applies to other means of finance, too.
If you’ve the bad fortune of being involved in an accident and your car is declared a write-off, you’ll need to end your finance deal early. Unfortunately, the only way to do this is to pay off the total amount and hope that the insurance payout will cover your costs. If you have paid for GAP insurance, however, you should avoid paying off the total amount. Read our full GAP insurance guide for more information.
Sometimes drivers may find themselves with a change of circumstances and doing many more miles than their finance agreement initially stated. The excess mileage charge is usually only a few pence per mile, but that can seriously add up over the course of three years. The best thing to do will be to ring up your finance provider and see if you can negotiate a different monthly rate.