STRUGGLING drivers can end their car finance contract early without a fee, thanks to a hidden clause.
Nine out of ten cars in the UK are brought using finance, leaving many drivers with ongoing monthly costs.
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And some households may be finding it increasingly difficult to keep up with payments as the cost of living crisis continues.
If you’re finding payments hard to manage, you may be able to hand your car back – known as voluntary termination.
Voluntary termination allows you to end a personal contract purchase (PCP) car finance agreement at any time – but there are certain conditions.
The clause is enshrined in the Consumer Credit Act.
You will need to have paid at least half of the total repayable amount, including interest.
The car will also need to be in a reasonable condition, without any damage.
It is also likely that you won’t reach the voluntary termination point until late in the contract – usually in the last few months.
And you also won’t be able to activate this clause if you have missed any payments before.
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Adrian Dally, director of motor finance at the Finance and Leasing Association, said: “Motor finance has a range of customer protections, one of which is voluntary termination of the agreement if the customer has paid 50% of what’s owed.
“Don’t forget though, that the value of used cars is high, so the number of customers choosing to voluntarily terminate is very low as they could be handing back an asset that is worth much more than the finance owed.”
How do I enter a voluntary termination agreement?
DebtCamel advises drivers to tell the finance company in writing that they are terminating the contract.
National Debtline and Citizen’s Advice have template letters on their websites that you can follow.
You should send the letter by recorded delivery and keep a copy of the letter, as well as proof of postage.
The length of time it takes to cancel your car finance agreement can often depend on your lender.
Make sure you check your contract first and contact your lender if you have any questions.
They will then give you details of how to return the car – they may ask you to deliver it or it might be picked up from your home.
A voluntary termination may appear on your credit file, but it is unlikely to affect your credit score or your ability to get finance in the future, according to Confused.Com.
What can I do if I am struggling with my payments?
You should speak to a debt counsellor if you are struggling, especially if you depend on your car for work, mobility or caring responsibilities.
Sue Anderson, at debt charity StepChange, previously told The Sun that your rights will vary when struggling with car finance payments, depending on the type of loan you have.
When you buy a car through a hire purchase, it belongs to the lender until you have made all the agreed payments.
She said: “This means you’re not allowed to sell it.
“You should contact your lender as soon as possible to let them know you’re having difficulty paying, as you may be able to arrange a payment holiday, or negotiate a more affordable payment plan.”
If you have a good credit rating, you may be able to buy a used car with an interest-free credit card and pay in instalments before the rate rises.
If a dealer lets you buy with a credit card, you could claim against the lender if the car turns out to be faulty.
This could be useful if the dealer goes bust or refuses to take responsibility.
Plus, we explain how rising interest rates and factor delays are pushing people to the brink of a car crisis.
Plus, one savvy savers told The Sun how he made £400 from renting out his parking space.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]
