Voluntary termination of car finance vs. Voluntary surrender
Learn the difference between voluntary termination of car finance and voluntary surrender
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Ending car finance early - voluntary termination or voluntary surrender?
If you need to end your car finance early, voluntary termination of car finance and voluntary surrender are two different methods of returning your car.
While they sound similar, these are two very different options with different consequences.
Voluntary termination means you’ll need to pay half of the Total Amount Payable on your contract, and any outstanding arrears.
Surrendering a financed car will mean you’re returning the vehicle while still being liable for the borrowed amount.
The lender will sell your car to recoup some of the outstanding balance, but you’ll be required to pay any remaining balance on the loan.
What is voluntary surrender of car finance?
Car finance voluntary surrender is the process of returning your car to the lender while still having an outstanding balance.
It’s usually a last resort for a person with car finance when they’re unable to pay.
The finance company will take the surrendered car and sell it at auction. They’ll use the money to pay towards the outstanding finance, but you will be liable for any outstanding balance that isn’t covered by the sale.
It’s very likely there will be an outstanding balance on the agreement after selling the car. This is because the value of most vehicles depreciates as soon as you buy it, meaning it'll be worth less than what you originally paid or financed.
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What is voluntary termination of car finance?
If you want to voluntarily terminate your car finance, you’ll be required to pay 50% of the Total Amount Payable on your Personal Contract Purchase (PCP) or Hire Purchase (HP) car finance and hand the car back to the lender.
The Total Amount Payable also includes any interest or extra charges or fees, on top of the amount owed on the car.
The car will need to be in a fair condition, with no excessive damage or more than the normal wear and tear.
If you haven’t yet paid 50% of the outstanding balance, you can pay the difference and still terminate your car finance agreement.
Voluntary termination of car finance is your legal right under the Consumer Credit Act 1974 (Section 99), so it can be a useful option if you want to return your car before the end of your contract.
Voluntary termination of car finance vs. voluntary surrender – what's the difference?
Voluntary termination and voluntary surrender are both similar in the way that, although you’re handing your car back, you may still be liable for at least some level of payment.
You’ll need to have paid that 50% balance amount for termination, and you may have to pay towards your surrender if the car doesn’t make enough at auction.
Surrendering a financed car is usually a last resort when payments can’t be made, while termination could be for reasons like needing a larger car or no longer needing a vehicle at all.
If you want to voluntarily surrender a cinch-financed car or terminate your agreement, it’s best to contact your lender for details on the process.
Does car finance voluntary surrender impact your credit score?
Voluntary surrender usually occurs after missed finance payments, which can have a negative impact on your credit score.
Some lenders may see a surrender as a positive because it shows you’ve taken steps to improve and manage your financial situation.
A voluntary surrender will usually stay on your credit report for six years from the initial missed payment.
Having a voluntary surrender in your credit history may make it harder to be accepted for other types of car finance, or another car finance loan.
You may also find that interest on future borrowing will be higher, as lenders could now see you as a higher risk.
However, some lenders might see a voluntary surrender as proof that you’ve been honest with the finance company and communicated your difficulties with paying.
They may see this as a positive – even though you couldn’t pay, you were honest and accepted responsibility, and the lender got its money back.
Does voluntary termination of car finance impact your credit score?
Car finance voluntary termination will not usually affect your credit score, but it will show up on your credit report.
Terminating car finance isn't usually seen as a marker of a bad borrower and shouldn’t highlight you as a risk to future lenders. You’re simply exercising your right to legally end a finance agreement.
By terminating the finance, you’ve shown you've kept up with the full 50% of payments required and have mutually settled the agreement through the proper legal process.