How to get out of a car finance agreement?

If your circumstances change after you have taken out car finance and you wish to end your agreement, don’t worry you can end your car finance early! Both Personal Contract Purchase (PCP) and Hire Purchase (HP) finance agreements can be terminated prematurely if for one reason or another you cannot continue to make the payments. Plus, If your car has been stolen or written off you will need to end your finance deal early. But, if you are covered by GAP Insurance, you won’t need to pay a full settlement fee.

Cancelling your finance agreement could be the best option if you can’t afford the payments as failing to do so will impact your opportunity to secure credit in the future. Though the law covers both PCP and HP agreements they are different in how they work. So, let’s look at each in turn.

Personal Contract Purchase

Personal Contract Purchase (PCP) is the most popular type of car finance, you pay an initial deposit, followed by a series of monthly payments usually paid between 12 and 48 months. At the end of your contract, you usually have three options to consider.

  • Return the car to the dealer - be prepared for additional charges for any damage caused or if you have exceeded your annual mileage limit
  • Purchase the car by paying purchase fee – set at the start of your agreement is a ‘Guaranteed Minimum Future Value’ payment. Once this is paid the car is all yours.
  • Part exchange – exchange your car for a brand spanking new car and take out a new finance agreement.

If you wish to cancel your finance agreement and you have repaid more than half or 50 per cent of the total finance to the finance company (including interest and fees) it should be a relatively simple process. If you haven’t repaid the 50 per cent you can still end the agreement early by paying for the difference, this is often called a balloon payment.

Hire Purchase

Hire Purchase (HP) finance can help to split the cost of a car into manageable monthly payments. At the beginning of the contract, you will pay an initial deposit which secures the car and this amount impacts the amount you need to pay each month. The higher the deposit, the lower monthly payment. Once you have made the final monthly payment, the car is yours to keep. 
Ending your HP agreement is similar to PCP, so if you have paid back more than 50 per cent of the total amount due, you can hand back the car to the dealer in return for cancelling any future monthly payments. If you haven’t repaid the 50 per cent, you will need to pay the difference and then cancel.

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It is important to understand your settlement figure from your car’s valuation price. This will equal the amount of equity available on the car. If you have a positive figure then you don’t owe any money. However, if your figure is negative, you’ll need to pay that amount of money to avoid negative equity.

If you are in positive equity and looking for a new car on PCP or HP agreement, why not visit the latest John Clark Motor Group offers by browsing our new and used cars. Find your dream car at one of our dealers in Scotland.