Returning a car on finance

If you’re currently financing a car, you might be wondering what happens if your circumstances change or if you want to end the agreement early. While car finance agreements typically lock you into monthly repayments for a set period, there are options for returning your vehicle or paying off the car finance early.

However, the process is not always straightforward and can vary depending on the type of finance agreement you have and your current financial situation. Whether you’re struggling to keep up with payments or want to move on to a new vehicle, understanding your rights and options can help you make an informed decision.

We’ll break down how returning a car on finance works, the possibility of paying off your finance early and what to expect in terms of fees and costs along the way.

Can you give back a car on finance?

Returning a car while it’s still under finance is possible, but it comes with a few conditions that vary depending on the type of agreement you have.

Voluntary termination is your legal right under the Consumer Credit Act and allows you to hand back the car to the lender before the finance term ends, provided certain conditions are met: 

• You’ve paid at least 50% of the total amount due over the course of the agreement (including both the amount you’ve paid in monthly instalments and any deposit you made at the start of the agreement).
• The car is returned in reasonable condition and within the agreed mileage limits to avoid additional charges.

Returning a car on Hire Purchase (HP)

With this agreement, the car typically remains the lender's property until the full balance is paid off. If you wish to return the car earlier, you'll typically need to have paid off at least 50% of the total as outlined in your agreement. 

Returning a car on Personal Contract Purchase (PCP)

PCP typically involves a balloon payment (the final large payment) at the end of the term. You can pay off this type of car finance early if you've paid enough of the monthly payments (at least 50%). Again, this includes the deposit and monthly payments but excludes the final balloon payment, which does not need to be paid in this situation.

In both circumstances, you'll need to notify your finance provider to exercise your right to voluntary termination.

Read more about PCP and HP finance agreements.

Can you return a car with negative equity?

If you owe more on the car than it's worth, this is called negative equity, and it can complicate the early return process. In some cases, returning the car through voluntary termination might not fully cover what you owe, especially if you haven’t paid back 50% of the finance agreement. In these situations, you might be left with a remaining balance that you will need to pay off.

Can you pay off your finance early?

You can typically pay off a car loan early if you're wanting to get out of debt faster, save on interest or simply want to own your car outright sooner. But it’s important to check the terms of your agreement. If you want to go ahead with repaying your finance, you'll usually need to do the following: 

1. Contact your finance provider: The first step is to contact your lender or finance provider. You'll need to request a settlement figure, which is the amount required to fully pay off the loan, including any accrued interest. 
2. Review the settlement figure: Ensure that it matches the remaining balance you owe and understand any additional charges, including early repayment fees, if applicable. 
3. Make the payment: Once you have the settlement figure, you can pay off the remaining balance in full. This can usually be done via bank transfer, cheque or other methods specified by the finance provider. 
4. Obtain confirmation: After payment, ask for written confirmation that your finance agreement has been settled. This is crucial for your records and to ensure that the lender has marked the agreement as closed. 

Benefits of paying off your car finance early

Some advantages of paying off your car loan early include saving money on interest, getting rid of debt and freeing up funds for other expenses or financial commitments. It might also help improve your credit score as it shows responsible financial behaviour. 

Disadvantages of paying off a car loan early

Keep in mind that some agreements may charge an early repayment fee, which is usually a percentage of the remaining balance. These fees can reduce some of the financial benefits of settling early, so it’s essential to factor them in. Additionally, if you have the financial means to pay off your car early, you might consider whether the funds could be better used elsewhere.

But it’s important to weigh up the pros and cons based on your circumstances. Always check your agreement and discuss it with your finance provider to ensure that early repayment is the best decision for you.

What are the potential costs when paying off car finance early?

As Jonathan Such, Head of Sales and Marketing explains, it's a good idea to be aware of any potential charges when paying off your car loan faster than previously agreed:

"You may face early repayment fees (usually up to 58 days’ worth of interest) depending on your agreement. If you have negative equity, you’ll still be liable for the difference between the car’s value and the outstanding finance.

"Additionally, if your car has excessive mileage or damage beyond normal wear and tear, you could incur extra charges. If you're using voluntary termination, you'll need to have paid at least 50% of the total finance amount to return the car without further obligations. Finally, while returning the car may not directly affect your credit score, it could have indirect consequences if there are unresolved balances."

For these reasons, it’s important to review your contract and speak with your lender to understand all potential costs before proceeding.

Explore your car finance options

If you're considering changing your car or want to explore your options, take a look at our car finance guide to find out more about what's available to you and your situation. 

Feel free to contact us if you have any questions and find out how we can help you navigate the process. And why not check out our insights and tips for more helpful industry news, information and guides?