When and how can i terminate a car leasing agreement? What have thirds and halves got to do with car finance? What are voluntary surrender and voluntary termination in car leasing? How are termination fees on car leases calculated?
You can terminate a car leasing agreement at any time, but depending on how much has been repaid, and how your payments are structured, the financial penalties could be severe. If you are struggling to meet your payments you should let your finance company know straight away, as they may be able to help.
Repossession or voluntary surrender
If you can’t meet your repayments and bought the car using hp or conditional sale, the finance company may wish to repossess the vehicle. You can pre-empt them by voluntarily surrendering the car, but you will still be liable for the outstanding repayments.
The rule of halves and thirds applies here which means that if you’ve repaid less than a third of the total amount payable (tap) they can notify you that they plan to take back the car. They 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 they 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, 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.
A final option, transferring the lease, involves ‘selling’ your lease to someone looking for a short-term car lease. however, 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 6 months remain on the contract.
Pcp arrangements are easier to escape as you may be able to sell the car to help meet the settlement figure.