Can I hand my car back if I can no longer afford the monthly finance payments?

Some forms of finance allow you to return your car early, but there are rules to consider. Here's what you need to know...

31 January 2019
Car finance explained

It’s always important to make sure you can afford the monthly repayments before you buy a car on finance but sometimes circumstances change, and people find themselves in financial difficulty. 

If you’ve bought a car on finance and found that you can no longer afford the monthly repayments then it is sometimes possible to cancel the contract and hand the car back to the finance company.

However, your ability to do so depends on the type of finance you have and how much money you have already paid off. 

Here, we explain exactly what you should do if you find you can no longer afford your monthly car finance payments. 


What should I do if I can’t afford to pay for my car? 

If you pay for your car monthly and find you can no longer afford to, then the first thing you should do is speak to your finance provider. It is far better to be honest with them than to default on your payments, and they may be able to help. 

Some lenders will be happier to assist than others, but they might suggest some other solutions that may allow you to keep the car and make the payments more manageable. They could, for example, allow you to defer the payments for a short period of time, or they may be willing to extend the period of the loan to reduce the cost of the monthly payments.  

Again, being open with finance companies and attempting to arrange a solution is a much better idea than failing to pay, which affects your credit score and makes it harder to get finance in future. 

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

What if I just want to hand the car back? 

It depends on the type of finance you have and where you are in the contract. 

If you bought your car using personal contract purchase (PCP) or hire purchase (HP) then you’re allowed to hand it back to the finance company if you have already paid off 50% of the loan, including any interest and fees. This is known as voluntary termination. 

If you’ve yet to pay off 50% of the loan then you’ll have to make up the difference if you want to hand the car back. Equally, if you’ve paid off more than 50%, you won’t get that extra money back if you cancel the contract and return the car. 

If you lease your car through a personal contract hire (PCH) scheme then it’s a lot more difficult to hand it back to the finance company. You can return it, but you’ll probably have to pay back any remaining money you owe on the contract, so if you still have a year left, then the lender will expect a year’s worth of fees up front. In this instance, it’s better to contact the finance company and see what else you can arrange. 

If you used a bank loan or credit card to buy your car and can’t afford the repayments, then you’ll likely have to sell the car to cover the money you owe. 

Next: will buying a car on finance affect getting a mortgage? >

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