Can I cancel my car finance early?

We explain the rules around cancelling your car finance before the end of the term...

PCP or HP: which car finance option makes most sense?

The majority of new cars are bought on finance, and while that's often the best way to get the right car for your budget, circumstances change, and some people want or need to cancel their agreement and return the car.

The good news is that it is possible to terminate your contract early with the most popular forms of car finance, but there are rules about when and how you do it.

PCP and HP contracts

Personal contract purchase (PCP) and hire purchase (HP) are two of the most popular forms of consumer car finance, and it's possible to cancel contracts early.

You must have already repaid 50% of the balance due, which includes interest and any other charges. If you have, you can cancel the contract and return the car. This is called voluntary termination and is a legally binding initiative under the Consumer Credit Act 1974.

If you haven’t yet paid off 50% of the money you owe on the car but still want to cancel the contract, you can make additional payments to bring you up to the halfway point. You won’t be able to terminate the contract until you have, though.

If you’ve paid off more than 50% of the cost of the car, you won’t get the extra money back if you cancel the contract and return it, so the best time to terminate is when you hit the halfway mark with the payments.

It might be that you want to keep the car and pay off whatever you owe early. This is also possible with PCP and HP contracts, and the best way to do it is to contact the finance company and ask for a settlement figure.  

With PCP contracts, you’ll also have to pay off the car’s guaranteed future value (GFV) – the amount it’s predicted to be worth at the end of the contract – before you own it outright. That’s not the case for HP contracts, though. You’ll probably have to pay an early termination fee for both types, though, which should be described in the contract.  

Different types of finance

Lease contracts

If you’re leasing a car on personal contract hire (PCH), it’s more complicated and expensive if you want to cancel the contract early. You can do it, but you’ll probably have to pay back the full amount of the remaining lease costs.

For example, if you wanted to cancel your lease contract but still had a year remaining, you would have to pay a year’s worth of monthly fees up front in order to do so.

With that in mind, it’s a good idea to make sure you can definitely afford the monthly repayments for the entirety of the contract before you sign up to a PCH and maybe even set aside some savings in case things get tight.

If you really can’t afford the lease, speak to the finance provider, because they may be willing to lengthen the term and therefore reduce the monthly costs.

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