Car Finance Termination - Financial Steps

Car finance agreements, while a common route to vehicle ownership, don’t necessarily mean you’re locked in until the very end. Several options exist for terminating your agreement early, each with its own implications and suitability depending on your circumstances.

Voluntary Termination (VT)

If you’ve paid at least 50% of the total amount payable (including interest, fees, and any balloon payment), you may be eligible for Voluntary Termination. This right is enshrined in the Consumer Credit Act 1974. You simply return the car to the finance company and walk away, with no further obligation beyond any potential excess mileage or damage charges.

Before proceeding, carefully review your agreement to determine your total amount payable and how much you’ve already paid. Factor in any potential charges for exceeding the agreed mileage allowance or for any damage beyond fair wear and tear. A professional inspection can help you assess the condition of the car and anticipate these costs.

Importantly, VT is not a free pass. If you have a history of late or missed payments, the finance company may argue that you haven’t taken reasonable care of the vehicle, potentially affecting your eligibility or incurring additional charges.

Settlement Figure

Another option is to request a settlement figure from the finance company. This figure represents the outstanding balance required to fully own the car, taking into account the remaining finance and any applicable early settlement fees. You can then pay this amount to terminate the agreement and become the outright owner. This is a viable path if you have sufficient funds available or can secure a personal loan to cover the settlement figure.

Be aware that the settlement figure will generally be higher than the remaining monthly payments added together, as it includes interest charges that haven’t yet accrued. Compare the settlement figure with the current market value of your car. If the car is worth more than the settlement figure, you could sell it privately and use the proceeds to settle the finance. If the car is worth less, you might need to explore other options.

Refinancing

If you’re struggling with your monthly payments, refinancing your car finance agreement might be an option. This involves taking out a new loan to pay off the existing one, potentially securing more favorable terms like a lower interest rate or a longer repayment period. A longer term will reduce your monthly payments but ultimately increase the total amount of interest you pay.

Part-Exchange

You can also consider part-exchanging your car for a new one. The dealer will assess the value of your current car and deduct any outstanding finance from the trade-in value. This can effectively terminate your current finance agreement, although you’ll be entering into a new one with the new vehicle.

Always obtain multiple quotes and compare offers carefully before making a decision. Understand the terms and conditions of any new finance agreement and ensure it aligns with your financial capabilities. Terminating a car finance agreement requires careful consideration of your circumstances and the potential consequences of each option. Seek professional financial advice if you’re unsure which path is best for you.