Can I hand my car back if I can no longer afford the monthly finance payments?
If you can’t keep up payments on a financed car, you might be able to end your contract early. We explain when you can and whether better options are available...
The vast majority of new cars sold in the UK are financed in some form, which can vastly reduce the impact of such an expensive purchase and let drivers get behind the wheel of a model they couldn’t otherwise afford.
However, with financing contracts typically lasting between 18 and 48 months, there’s always the possibility that your circumstances may change or the rising cost of living makes it difficult to keep up payments. In these circumstances, you may wish to cancel the finance agreement early.
While some car finance contracts can be cancelled without any additional expense, that’s not the case across the board, so it’s important to know the details of the finance agreement you signed up to.
You’ll also need to consider the type of car finance deal you entered and how much of the entire cost of the vehicle you’ve already paid off. These are commonly the most important factors in deciding whether handing the car back is the best option for you and, if so, when is the best time to do it.
Here, we share when you should hand back your car if you find you can no longer keep up payments and exactly what you should do to return it.
I have a car on finance but I can’t afford the payments
No matter what kind of finance agreement you’re in, the first thing you should do if you’re unable to afford the monthly payments is let your finance provider know. While some lenders are happier to assist than others, most will suggest ways of reducing how much you need to pay each month.
They might be able to:
- Change your payment due date
- Defer the payments for a short period of time
- Extend the length of your finance agreement (many lenders will offer contracts of up to 48 months)
- Swap your current car for a cheaper model
Being open with the finance company and attempting to arrange a solution is a much better idea than failing to pay. If you miss payments, your credit score might be affected, which could make it harder to get finance in the future.
Could I reduce my payments by downsizing?
One way dealers can help to make financing costs more manageable is by ending your current contract early and transferring you over to a new agreement for a cheaper car. This means you’ll still have your own transport, but won’t have to pay as much for it.
Of course, there are other ways for you to reduce your motoring bills. You could always:
- Reduce the number of miles you travel
- Find a cheaper car insurance policy
- Enter a servicing plan to spread the cost of maintenance
Can I hand my car back?
This will depend on the type of finance you have and how far you are into the contract. If you entered a personal contract purchase (PCP) or hire purchase (HP) agreement, you’re allowed to hand it back to the finance company if you’ve already paid off 50% of the loan, including any interest and fees. This process is known as voluntary termination.
If you’ve yet to pay off half of the loan, you’ll need to make up the difference in order to hand the car back. Equally, if you’ve paid off over 50%, you won’t get that extra money back if you cancel the contract.
Personal contract hire (PCH) schemes – usually referred to as a car lease – are a lot more difficult to end early. You can return your car before the contract ends; however, you’ll probably still need to pay back any remaining money you owe on the contract. As a result, if you hand the car back a year early, the lender will expect a year’s worth of payments up front. In this case, it’s always best to talk to the finance company first and see what they can arrange.
Can I sell my car halfway through a finance deal?
Under a PCP or HP deal, you’re not the legal owner of the car until you’ve made all the payments, meaning you don’t legally have the right to sell it privately.
That said, it may be possible to trade it in with a car dealer because most major dealer groups have the ability to settle the outstanding finance for you. However, the cost of covering the settlement figure with the finance company will be factored into how much you get for the car.
Nevertheless, if you are leasing a car through PCH, you won’t be able to sell it at all, because there’s no way to own the vehicle under this type of agreement.
If you used a personal loan or credit card to buy your car and can’t afford the repayments, you’re the legal owner of the car and therefore have the right to sell it on. You’ll still need to settle any outstanding money with the lender, though.
Can I refinance my car?
In many cases you may be able to reduce your monthly repayments by considering car refinancing. In simple terms, this entails taking out a new finance agreement to settle the old one. There are a number of specialists who can guide you through the process.
Car refinancing isn’t without its issues, though. While some drivers may be able to access better deals, particularly if your circumstances have changed, others may find a refinancing deal may be no better than their current.
What happens if I refuse to pay the finance payments on my car?
It’s a bad idea to refuse to make your finance payments, even if you’re struggling to pay. If you fail to pay any money that’s due, your car could be repossessed and it might cost you considerably more in the long run.
If you miss a payment, the finance company will get in touch. If you fail to make them aware of your circumstances and continue to miss payments, they will issue an arrears notice. Eventually, they will take the car back and might even take you to court to charge you for the outstanding debt and interest on it.
Refusing to make payments without talking to the lender may also cause your credit score to decrease, which can make it harder to get finance in the future.
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Read more: What is PCP? Understanding personal contract purchase car finance >>
FAQs
In some circumstances you can just end a car finance deal and hand the car back — but in others this could end up costing you a lot of money, so it's not always the best thing to do.
If you're paying for your car on a personal contract purchase (PCP) or hire purchase (HP), you can hand your car back once you've paid at least half of the original loan amount. But if you've paid more than 50% of the cost back you won't the difference back.
If your car is on a personal contract hire (PCH) deal (also referred to as a car lease), it's likely you'll need to meet all the outstanding payments to terminate the agreement early.
In all instances, talk to the finance company as soon as possible to work out a deal that lets you keep the car or swap it for something more affordable.
As long as you've paid at least 50% of the original finance amount you can give your car back to the finance company and walk away on a PCP or HP deal. However, you'll lose any additional payments you've made above 50%. On a PCH deal you can also give the car back, but you'll be hit with either early termination fees or be required to pay all the outstanding installments.
If your circumstances change and you can no longer meet the monthly payments for your car, speak to the finance company directly. They may be able to extend the length of the finance agreement to make the monthly payments smaller, or you may be able to trade your car in for a cheaper model to help reduce the costs.
Don't simply stop making payments, or ignore the finance company if they get in touch. That could result in an arrears notice which could harm your credit rating, the possibility they'll repossess the car and the likelihood you'll need to pay the outstanding balance plus interest.
You're likely to lose out financially if you return your car before the finance agreement ends. If you bought it on a PCP or HP agreement, you can return your car without fees once you've paid off at least half of the finance amount. If you've paid any more than this you'll lose that money.
On a PCP deal, there is usually some equity on the car at the end of the agreement, which you can put towards a new vehicle or keep if you pay off the optional final payment (usually called the balloon payment) and then sell the car. However, if you return the car without exchanging it for a new one, or making the final payment, you'll lose out on a large chunk of money.
The situation is worse if you've taken out a PCH lease agreement because you're likely to be asked to pay the entire outstanding balance, which could be £1000s.
