Voluntary termination (or VT for short) helps you get out of a car finance contract if you can’t keep up with the payments. 

Today, we're diving into how voluntary termination of car finance works, why you might consider it, and the financial impacts involved, so you can make an informed decision that’s best for you.

What is voluntary termination of car finance?

Voluntary termination (VT) is a term used to describe ending your car finance agreement before the official contract end date. 

Since the Consumer Credit Act of 1974, this option has been available for all UK drivers, provided they meet the relevant criteria. 

If you choose Voluntary Termination (VT), your finance contract ends, and you must return the vehicle—meaning you can’t keep the car. This option protects drivers facing financial changes, providing a safeguard in challenging circumstances.

Voluntary termination vs voluntary surrender

Voluntary termination and voluntary surrender may sound similar, but they’re very different concepts. Here’s a quick breakdown:

• Voluntary surrender — With voluntary surrender, you return the car but must still pay any remaining loan balance, including any shortfall after the auction.
• Voluntary termination—With voluntary termination, your liability is capped at 50% of the Total Amount Payable plus any arrears, and you are not obligated further after termination.

Knowing the difference between the two can help you avoid any confusion when filing your application, and will save you future charges!

What are your rights under the Consumer Credit Act?

VT falls under Section 99 of the Consumer Credit Act 1974.

This grants consumers the right to terminate regulated hire-purchase or conditional sale agreements before the final payment is due. 

To exercise this right, you must have paid at least 50% of the total amount payable under the agreement. This total includes the vehicle cost, interest, and any additional fees outlined in the contract. 

If 50% has not yet been paid, the consumer can make an additional payment to reach this threshold and proceed with the termination. 

You must fulfil these terms and conditions to be eligible for VT. 

Reasons to file for voluntary termination

There are a few common reasons for filing for voluntary termination, such as:

• If you lose your job
• Face significant unexpected costs
• Encounter a big change in financial circumstances
• You no longer need the car
• Any other affordability issues

The reasons mainly surround finances and being able to afford the car. It’s not an option for those who just fancy a new car and want to get out of their contract.

How voluntary termination car finance works

Voluntary termination is an option for new and used cars financed through PCP or HP agreements. 

The general steps to apply and start VT include:

1. Review your finance agreement and assess whether your car is in good condition.
2. Contact the finance company and tell them you want to terminate your agreement via VT or under Section 99 of the Consumer Credit Act. You can do this by letter or email.
3. Arrange the return of your vehicle with the finance company—either via collection services or driving to a specified location.
4. Settle any outstanding payments to meet the 50% threshold.

You can ensure a smoother transition by documenting your vehicle’s condition, maintaining clear communication, and by keeping a record of all phone calls, emails or letters.

If you’re ever unsure, contact the finance provider for more information.

Let’s break down the requirements for PCP and HP contracts. 

For PCP

In a PCP agreement, the 50% threshold includes interest, fees, and the balloon payment, not just monthly payments. Even halfway through your term, you may not have reached this amount. 

If you haven't, you can pay the difference to qualify for voluntary termination, but any payments beyond 50% won't be refunded.

For HP

HP (Hire Purchase) voluntary terminations are much simpler than PCP. 

HP contracts don’t have any lump-sum balloon payments. Rather, your repayments are spread evenly across your term.

When you reach the halfway paying point, you automatically qualify for the 50% payment requirement. You can even pay the difference to get to the 50% mark if you’re slightly short of this amount.

How long does voluntary termination take?

Once you apply, voluntary termination is a quick process. 

However, finance companies aren’t usually keen on this process, and may lengthen the application time if you’re not clear about your circumstances.

Want to speed up the process? Ensure you clearly understand what you want, know the difference between voluntary termination and surrender, and meet the necessary requirements.

Financial drawbacks of voluntary termination

Exercising voluntary termination can have several financial consequences you may want to consider. These include:

• Penalties for excessive wear or mileage — You must maintain the vehicle, and any damage beyond fair wear and tear or excess mileage may incur charges.
• Impact on credit score — Voluntary termination won't harm your credit score, but it will appear on your credit file, which future lenders may consider.
• Equity considerations — If you've paid more than 50%, you won't get a refund on the excess. However, if the car's market value exceeds the remaining balance, selling it privately might be more beneficial.

Does voluntary termination affect your credit score?

No, VT doesn’t negatively impact your credit score.

However, as mentioned above, it will appear on your credit report. This may influence lender’s opinions in the future, even if your credit score doesn’t drop.

Last thoughts

Voluntary termination gives you a way to walk away from your car finance agreement legally and without major penalties, as long as you follow the rules.

Just make sure you go through the process carefully, meet all the requirements, and understand any financial impacts along the way.

Find more information for UK drivers via the Bumper blog.

How Bumper can help

Owning a car can come with plenty of surprise expenses. 

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