Can I terminate a car finance or leasing agreement early?

You can terminate a car leasing agreement early, but whether you would want to do this is a different matter, because the financial penalties can be severe.

To understand the ins and outs of early termination, you need to be aware of what you'll be liable for, so you need to know how termination fees on car leases are calculated.

Nevertheless, if you are struggling to meet your payments you should let your finance company know straight away, because they may be able to help you out.

Repossession or voluntary surrender
If you can't meet your repayments and bought the car using hire purchase or conditional sale, the finance company may wish to repossess the vehicle. You can pre-empt this by voluntarily surrendering the car, but you will still be liable for the outstanding repayments.

The 'rule of halves and thirds' applies here. So, if you've repaid less than a third of the Total Amount Payable (TAP) the lender can notify you that it plans to take back the car. However, it will need a court order to do so if the car is parked on your drive or in your garage, although not if it's parked out on the road.

If you've repaid more than a third, it will need a court order wherever the car is parked.
Once you've paid at least half of the TAP to the finance company, you do have the option to hand back the car and walk away, in a process called voluntary termination. You can do this at any time and the amount payable should be stated on the contract. If you've already paid more than half, you won't be offered a refund.

You can also pay off the loan early and keep the car, but you may have to pay an early settlement fee. You should be entitled to a rebate on future charges.

Lease transfer
A final option involves 'selling' your lease to someone looking for a short-term car lease. However, check your paperwork carefully because not all leasing companies will allow this.

How are termination fees on car leases calculated?
This depends on the type of contract you have made, and details will be explained in the small print, so it's important to check this carefully before signing to confirm that you've understood and agreed to them.

With contract hire, you can expect to pay about 50% of the outstanding payments, providing no less than six months remain on the contract.

Personal Contract Purchase (PCP) arrangements are much easier to get out of because you can often sell the car to help meet the settlement figure.

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