Hire purchase (HP) and personal contract purchase (PCP) are the most common ways to finance a car. The car belongs to the finance company until you’ve paid in full, which gives you some specific rights, and the lender some specific powers.
The short answer
- Under HP and PCP, the finance company owns the car until you finish paying.
- Voluntary termination lets you hand the car back once you’ve paid half the total amount payable.
- Once you’ve paid a third, the lender usually needs a court order to repossess.
- If you need the car for work, it may be treated as a priority.
- Get advice before giving up a car you need.
What is voluntary termination?
The Consumer Credit Act gives you the right to end a regulated HP or PCP agreement and return the car once you’ve paid at least half the total amount payable, including interest and fees. If you’ve paid less, you can still terminate but may need to make up the difference to 50%. You may also be charged for damage beyond fair wear and tear.
Can the lender take the car back?
If you fall behind, the lender can end the agreement. Once you’ve paid at least a third of the total amount, the car is “protected” and the lender usually needs a court order to repossess it without your permission.
What other options are there?
- Ask the lender for a payment plan or reduced payments for a period.
- Sell the car with the lender’s permission and settle the finance.
- Check whether you may be due compensation if you had a car finance deal with a discretionary commission arrangement. Follow official updates from the FCA.
What about car finance in an IVA?
Car finance is usually dealt with separately because the car is the lender’s security. See buying a car during an IVA.
Common questions
Does voluntary termination affect my credit score?
It should be recorded as a terminated agreement rather than a default, though some lenders may note it. Check your file afterwards.
Can bailiffs take a car on finance?
Not for someone else’s debt, because the car belongs to the finance company. See can bailiffs take my car?
Can I keep my car in an IVA?
Often yes, if it’s needed and the finance payments are reasonable. Valuable cars owned outright may be considered an asset.
Getting help
You don’t have to deal with debt on your own. Free, impartial advice is available from MoneyHelper, StepChange and National Debtline. If you want to talk through whether a formal solution such as an IVA could be suitable, you can also get in touch with us.