HomeFinanceHow to Get Out of Car Finance Agreement in the UK?

How to Get Out of Car Finance Agreement in the UK?

Are you feeling trapped in a car finance agreement? Don’t worry, you’re not alone. Many people find themselves in a situation where they want to get out of their car finance agreement for various reasons.

Whether it’s because of financial constraints, changing circumstances, or simply wanting a different vehicle, there are options available to help you break free from the shackles of your current agreement.

In this blog post, we’ll explore what exactly a car finance agreement is and the different types that exist in the UK. We’ll then dive into how you can successfully navigate your way out of this contract without facing hefty penalties.

From exploring alternative solutions to understanding the impact on your credit score, we’ve got you covered. So, if you’re ready to regain control over your automotive destiny and discover how to get out of a car finance agreement hassle-free, keep reading!

What is a Car Finance Agreement?

What is a Car Finance Agreement

A car finance agreement is essentially a pact between an individual and a lending institution, enabling the person to borrow money to purchase a car. The borrowed amount is then repaid over a specified duration, usually with added interest.

The agreement typically outlines the terms and conditions of the loan, including the amount borrowed, interest rate, repayment schedule, and any other fees or charges. It also includes details about the vehicle being purchased, such as make, model, and identification number.

Car finance agreements can be secured or unsecured. Secured agreements require collateral, such as the car itself, to be put up in case of default on payments. Unsecured agreements do not require collateral but may have higher interest rates.

Once both parties have agreed to the terms of the car finance agreement, it becomes a legally binding contract. The borrower is responsible for making timely payments until the loan is fully repaid. Failure to do so can result in penalties or even repossession of the vehicle.

It’s important for borrowers to carefully review and understand all aspects of a car finance agreement before signing it. This includes understanding the total cost of borrowing and being aware of any potential risks or consequences for non-payment.

Types of Car Finance Agreements

In the UK, individuals seeking to purchase a car have several options when it comes to financing their purchase. These options cater to diverse financial situations and preferences. Here’s a breakdown of the four main types of car finance agreements prevalent in the UK:

  1. Hire Purchase (HP):

Hire Purchase (HP) is a credit agreement that allows buyers to spread the cost of a car over a period, usually lasting 2-5 years. To initiate this agreement, a deposit, typically 10-20% of the car’s cost, is paid. Subsequently, fixed monthly payments are made until the full amount is repaid. At the end of the term, the buyer becomes the rightful owner of the car.

  1. Personal Contract Purchase (PCP):

Personal Contract Purchase (PCP) is another financing option where the cost of the car is spread over 2-4 years. Similar to HP, a deposit is required, followed by fixed monthly payments. At the end of the agreement, the buyer has three choices: pay the remaining value (balloon payment) to keep the car, return the car to the lender, or use the car as a deposit for a new one. PCP often offers lower monthly payments compared to HP but entails a balloon payment at the end of the term.

  1. Personal Loan:

A personal loan is an unsecured loan that can be used for various purposes, including buying a car. With a personal loan, the entire cost of the car is borrowed and repaid over a period of 1-7 years, along with interest. Once the loan is repaid, the car becomes the owner’s property.

  1. Personal Contract Hire (PCH):

Personal Contract Hire (PCH) is a leasing agreement wherein individuals can have a new car for a fixed monthly rental fee spanning 2-4 years. However, at the end of the term, the car must be returned to the lender. PCH is often a cost-effective option in terms of monthly payments, although the individual does not gain ownership of the vehicle.

Choosing the right car finance agreement depends on individual circumstances and preferences. Factors such as budget, ownership desires, and long-term plans should be carefully considered. If uncertain about the suitable option, seeking advice from a financial advisor is always a prudent step.

How to Get Out of Car Finance Agreement in the UK?

How to Get Out of Car Finance Agreement in the UK?

If you find yourself in the UK and need to get out of a car finance agreement, there are several options available to you. Here are some steps and considerations for each approach:

  1. Voluntary Termination (VT):

The most common way to end a car finance agreement early in the UK is through voluntary termination. You have the right to VT if you’ve paid at least half of the total amount payable under the agreement, which includes the deposit, all monthly payments, the optional final payment, and any interest and fees charged.

If you haven’t reached this halfway point, you’ll need to pay the difference to exercise your VT rights. To start the process, contact your finance company and provide them with written notice. Make sure to return the car in good condition, allowing for fair wear and tear.

2. Voluntarily Surrender the Car:

If you can no longer afford your monthly payments, you may consider voluntarily surrendering the car to the finance company. This will relieve you of the responsibility for future payments, but you will lose the car in the process. Contact your finance company to initiate this process, and they will arrange for the vehicle to be collected.

3. Pay Off the Settlement Figure:

To end the agreement early and purchase the car outright, you can pay off the settlement figure. This amount can vary, but generally, the closer you are to the end of the agreement, the smaller the figure will be. Contact your finance company for a quote and arrange to make the full payment.

4. Negotiate with the Finance Company:

If you’re struggling to make your monthly payments, it’s worth discussing your situation with the finance company. You may be able to negotiate a reduction in your monthly payments or an extension of the agreement’s term. When contacting them, be prepared to provide evidence of your financial difficulties, such as a copy of your bank statement.

Keep in mind that there may be fees associated with ending a car finance agreement early, so it’s essential to clarify this with your finance company before taking any action. If you’re facing challenges in navigating this process, seeking advice from a debt charity or financial advisor can be a helpful step to ensure you make the best decision for your specific circumstances.

Reasons to Exit Your Car Finance Agreement

In various situations, individuals find themselves contemplating the idea of exiting their car finance agreement earlier than planned. This decision is influenced by several common reasons that many people encounter:

  1. Financial Struggles: When faced with financial difficulties, meeting monthly payments can become a daunting task. Exiting the agreement early might be considered to prevent falling into arrears and managing financial stability.
  2. Change in Circumstances: Life is unpredictable, and situations can change drastically – be it losing a job, going through a divorce, or any other significant life event. Such changes often lead people to reassess their commitments, including their car finance agreements.
  3. Redundant Vehicle: If the need for the car diminishes, perhaps due to remote work setups or relocating to a city with efficient public transportation, exiting the agreement could be a practical choice to avoid unnecessary expenses.
  4. Desire for a Different Car: Sometimes, the desire for a new vehicle prompts individuals to exit their current agreement early. By doing so, they can utilize the funds from the previous car to invest in a different model.
  5. Better Financing Deal: Discovering a more favourable car finance deal from another lender can be a game-changer. People often opt to exit their existing agreement to secure a better financial arrangement for their vehicle.

However, it’s crucial to bear in mind that exiting a car finance agreement prematurely might come with associated fees. It’s highly advisable to consult the respective lender before making any decisions to fully comprehend the financial implications involved.

For individuals contemplating this move, careful consideration of the pros and cons is essential. Seeking guidance from a financial advisor can provide valuable insights, aiding in making an informed decision tailored to one’s unique circumstances. Remember, each situation is unique, and consulting with a professional can help navigate the complexities of exiting a car finance agreement wisely.

After Exiting: What Comes Next?

After Exiting - What Comes Next

After exiting a car finance agreement, there are several important steps to consider.

First and foremost, if you’re not planning to keep the car, you’ll need to return it to the lender in good condition, ensuring it meets the requirements for fair wear and tear. This is a crucial step to complete.

If you haven’t paid off the full loan amount, you will also need to pay the settlement figure to the lender. This figure represents the amount needed to end the agreement early and purchase the car outright.

Additionally, there might be various fees associated with exiting a car finance agreement prematurely, such as administrative fees or early repayment fees. It’s essential to address and pay these fees to the lender.

If you plan to retain the vehicle, you should update your insurance and tax information and ensure that the car is registered in your name. These steps are vital to ensure you are legally and financially responsible for the vehicle.

Always be prepared for potential questions and clarifications. If you have any uncertainties or inquiries regarding the process of exiting your car finance agreement, it’s advisable to reach out to your lender for guidance and assistance.

Beyond these basic steps, there are some additional considerations to keep in mind:

  • Check Your Credit Report: After exiting your car finance agreement, it’s wise to review your credit report to ensure its accuracy. You can obtain a free copy of your credit report from the major credit bureaus (Experian, Equifax, and TransUnion). This step is important for maintaining a healthy credit history.
  • Budget for Your Next Car: If you intend to purchase another vehicle, it’s crucial to create a budget that takes into account the monthly payments, insurance costs, taxes, and fuel expenses. Adequate financial planning will help you make informed decisions.
  • Shop Around for the Best Deal: When considering a new car finance agreement, don’t rush into the first offer that comes your way. Take the time to shop around and compare offers from different lenders. This can be done online or through the assistance of a car finance broker to secure the most favourable terms.

By following these steps and tips, you can navigate the process of exiting your car finance agreement with confidence and ensure a smooth transition to your next automotive endeavour.


Getting out of a car finance agreement in the UK can be a complex and challenging process. However, it is not impossible. By understanding your options and weighing the pros and cons, you can make an informed decision that best suits your financial situation.

Remember, there are various alternatives to consider before exiting the agreement, such as negotiating with the lender or seeking refinancing options. It’s important to explore these possibilities before taking any drastic steps.

FAQ – How to Get Out of a Car Finance Agreement in the UK?

FAQ - How to Get Out of a Car Finance Agreement in the UK?

Can I Exit My Car Finance Agreement Early Without Penalties?

Yes, you can exit your car finance agreement early without penalties in some cases. The most common way to do this is through voluntary termination (VT). VT is a legal right under the Consumer Credit Act 1974, and it allows you to end your car finance agreement early if you have paid at least half of the total amount payable under the agreement.

What Happens to My Credit Score if I Voluntarily Terminate the Agreement?

When considering voluntarily terminating a car finance agreement, one might wonder about the potential impact on their credit score. The good news is that voluntarily terminating an agreement (VT) typically does not have a negative effect on your credit score. In fact, it may even enhance your creditworthiness in the long term.

Voluntarily terminating a finance agreement demonstrates responsible financial management. It shows that you were able to assess your financial situation, make a decision, and end the agreement early without defaulting on any payments. This responsible behaviour reflects positively on your credit history. Lenders and credit agencies view this as a sign of financial responsibility, as it indicates your ability to make informed decisions and manage your obligations sensibly.

Are There Alternative Solutions to Consider Before Exiting the Agreement?

Before deciding to exit a car finance agreement, it’s essential to explore alternative solutions that might be more favourable to your financial situation. Several options are available to consider:

  1. Negotiating with Your Lender: When faced with difficulties in making your monthly payments, initiating a conversation with your lender can be an effective solution. You may be able to work out a new arrangement that reduces your monthly payments or extends the agreement’s term. This approach can make the financial burden more manageable and help you avoid the need to exit the agreement prematurely.
  2. Refinancing Your Agreement: If you have a good credit history, refinancing your car finance agreement with another lender at a lower interest rate is an attractive alternative. This can lead to reduced monthly payments and significant cost savings over the agreement’s lifespan.
  3. Selling the Car: If you find yourself in a situation where you no longer require the vehicle, selling it is an option. You can use the proceeds from the sale to pay off the remaining balance of the car finance agreement. However, it’s crucial to note that you may not be able to sell the car until the settlement figure is fully paid.
  4. Part-Exchanging the Car: If your desire is to acquire a different vehicle, part-exchanging your current car can be a viable choice. This involves trading in your current car and using the equity as a deposit on the new one. It’s a practical way to transition to a new vehicle without significantly increasing your monthly payments.

Before making any definitive decisions about your car finance agreement, it’s strongly recommended to consult with your lender or a financial advisor. They possess the expertise to guide you through the various options available, ensuring that you select the solution best suited to your unique financial circumstances.

Can I just give my car back to the finance company?

When it comes to returning your car to the finance company, it is indeed possible to do so. However, it’s crucial to be aware of the consequences associated with this decision. If you opt for voluntary surrender, the finance company will repossess the vehicle and sell it to cover their losses.

What’s important to note is that you’ll still be held accountable for any deficiency balance. This balance refers to the disparity between the selling price of the car and the remaining amount you owe on the loan.

Before you proceed with giving your car back, here are a few key points to consider:

  1. Credit Score Impact: Voluntary surrender is regarded as a form of default, negatively impacting your credit score. This downgrade in your creditworthiness can make it harder and more expensive to secure loans in the future.
  2. Additional Fees: The finance company might impose fees for repossessing and selling your car. It’s crucial to inquire about these potential charges before making your decision, as they can add up significantly.
  3. Outstanding Loan Amount: If the car sells for less than what you owe on the loan, you’ll still be responsible for the deficiency balance. This amount can be substantial, so it’s essential to explore all available options before choosing voluntary surrender.

In case you find it challenging to meet your car payments, it’s advisable to reach out to your lender promptly. Lenders are often willing to collaborate with borrowers, offering solutions such as loan modifications or alternative arrangements.

Seeking guidance from a credit counsellor or a financial advisor can also provide valuable insights into managing your financial situation effectively. Remember, staying informed and exploring various avenues can help you make the best decision for your specific circumstances.


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