Ending a Car Finance Deal

A personal contract purchase (PCP) agreement works differently from HP as it gives you options. You don’t necessarily have to become the car’s legal owner when the agreement ends. Instead, you can choose to return it, buy it by paying the one-off balloon payment, or trade it in as a deposit in a new deal.

If you return the car

So, you’ve decided to return the car when your PCP deal ends. Maybe it wasn’t the best fit for your lifestyle, you can’t afford to buy it, or you’re simply ready for a change.

If you choose to go down this route, it’s considered good practice to let the lender know in advance. They’ll usually want to book a time to collect the car and carry out an inspection.

Before they come and collect, it’s always worth cleaning the car inside and out, collating all the relevant paperwork, and ensuring you know where the spare keys are.

During the lender’s inspection, they’ll check whether there’s any damage on the vehicle that goes beyond standard wear and tear. The number of scratches and scuffs they’ll accept will usually depend on the car’s age, the length of your agreement, and your agreed mileage. You might be charged extra if they find more serious damage.

Once the inspection is complete, you’ll need to sign to say you accept the findings. Consider checking your car into a local garage before returning it if you know repairs need to be completed, as this could save you money in the long run.

If you buy the car

Ready to become the car’s legal owner at the end of your PCP deal? If you can’t imagine letting go of your pride and joy, you can buy it, but you’ll need to pay the one-off balloon payment first.

Your balloon payment is agreed upon at the start of your term and is based on the amount the lender thinks your car will be worth. It’s also known as the Guaranteed Minimum Future Value (GMFV).

Depending on the car, its predicted rate of depreciation, and the length of your loan term, the balloon payment could total a few thousand pounds. If you can’t afford to pay out that amount in one go, you might be eligible for a refinance loan to spread the cost over time.

If you trade in the car

A car bought on PCP can only be traded in and used as a deposit in a new deal if it’s in positive equity. This means the car’s actual value is more than the GMFV or balloon payment. The difference between these two figures can serve as a deposit.

In some cases, your car might be worth less than the GMFV. It’s all down to the depreciation rate – the speed at which the vehicle loses value – which can be unpredictable. If you find yourself in this situation – known as being in negative equity – it’s usually better to return the car to the lender and walk away.

With a personal car loan, things are flipped on their head. Instead of waiting until the end of the loan term to own the car, you’ll be its legal owner as soon as you use the money to pay the dealer.

The only requirement (in most cases) is that you keep up with your monthly repayments. You can also modify or sell the car at any time.

When the personal loan term ends, it will be marked as repaid on your credit report.

If you’ve made all your monthly repayments on time, you’ll become the car’s legal owner at the end of both an HP and personal car loan agreement. An additional Option to Purchase fee might apply with HP car finance to cover the cost of transferring ownership to your name.

In a PCP deal, you won’t own the car when the agreement ends unless you choose to pay the balloon payment. You could pay this outright or take out a refinance loan to split the cost into affordable chunks.

With a PCH deal, you’ll likely never own the car. While some lease companies will make their cars available to purchase at the end of a lease, this isn’t guaranteed. Instead, you’ll need to either extend the term or hand the car back.

If your circumstances change, ending your car finance agreement early might be possible.

With an HP or PCP loan, you’ll need to settle your loan first. Contact your lender to request a settlement figure, which is the amount you’ll need to pay to bring the loan to an end ahead of time. The further you are into the agreement, the lower this figure will likely be. An early settlement charge might apply, so double-check your agreement’s small print.

If you need to end your agreement because you can’t afford the repayments, there are two other options available:

A refinance loan could help you get lower payments by extending the loan term or securing a better interest rate.

Alternatively, under UK consumer law, you have the right to voluntary termination once you’ve repaid 50% of the total amount repayable. This includes any interest, charges, and the balloon payment if you have a PCP deal. You can pay the difference to reach the 50% threshold if you need to, and once you hit it, you can hand the car back to the finance company.