Buying a car on finance is a common practice in the UK, allowing you to drive away with a vehicle that you might otherwise not be able to afford outright. However, what happens when you need to return a used car you’ve financed? The process isn’t as straightforward as returning an unsatisfactory item to a store.
What does buying a car on finance mean?
When you purchase a car on finance, you agree to pay for the vehicle in instalments over a period of time, rather than paying the full amount upfront. There are several types of car finance agreements common in the UK:
- Personal Contract Purchase (PCP): You pay a deposit, followed by monthly payments. At the end of the agreement, you can choose to pay a final balloon payment to own the car, return the vehicle, or start a new agreement.
- Hire Purchase (HP): After paying a deposit, you make monthly payments that cover the total cost of the car. Once all payments are made, the ownership of the vehicle transfers to you automatically.
- Personal Contract Hire (PCH): Essentially a lease, where you pay to use the car for an agreed period and mileage. At the end of the term, the car is returned to the finance company.
Each type of finance agreement offers different options for managing the car at the end of the term, but what if you decide to return the car before the agreement ends?
Reasons for returning a financed car
Several scenarios might lead you to consider returning a financed car:
- Financial difficulties: Changes in your financial situation may mean you can no longer afford the monthly payments.
- Faults with the car: Discovering significant mechanical issues or faults that were not apparent when you purchased the car.
- Misrepresentation: If the car was not as described at the time of purchase.
Your legal rights under UK law
Under UK consumer law, specifically the Consumer Rights Act 2015, you have certain rights when it comes to returning a used car purchased on finance:
- Right to reject: You can reject the car within the first 30 days of purchase if it fails to meet satisfactory quality, is not fit for purpose, or is not as described.
- Repair or replacement: If the 30-day period has lapsed, you have the right to request a repair or replacement. The dealer has one opportunity to repair the vehicle after which, if the issue persists, you can ask for a refund.
It’s important to note that these rights are against the dealer, not the finance company. However, under Section 75 of the Consumer Credit Act 1974, if you paid any part of the purchase price with a credit card, the finance company is jointly and severally liable for any breach of contract or misrepresentation by the dealer.
Voluntary termination of a finance agreement
Under the Consumer Credit Act, you have the right to voluntarily terminate a HP or a PCP agreement if you have paid 50% of the total finance amount, including any interest and fees. This is known as ‘half rule’. This option can be exercised without needing to give a reason, providing an exit route if you can no longer afford the payments or if your circumstances change. This right does not apply to PCH agreements, where you might face penalties for terminating the contract early.
Steps to return a financed car
If you decide that returning your financed car is the best course of action, follow these steps:
1. Review your finance agreement: Understand the terms and conditions of your specific contract.
2. Communicate with your finance provider: Inform them of your decision and discuss the options available, such as voluntary termination or transferring the finance to another vehicle.
3. Gather documentation: Collect all relevant paperwork, such as service records and correspondence related to the car’s condition.
4. Get the car inspected: If returning due to faults, have these documented by an independent mechanic.
Considerations before returning a financed car
Returning a financed car can have financial implications, such as:
- Early termination fees: Some agreements include fees for early termination.
- Mileage and condition charges: Especially relevant for PCH and PCP agreements, where exceeding mileage limits or returning the car in poor condition can result in charges.
Navigating the return of a financed car
Returning a used car on finance is possible, but it comes with various challenges and considerations. Understanding your rights under UK consumer and finance law is crucial. Always review your finance agreement and seek professional advice if necessary to navigate this complex process.
Frequently asked questions
Can I return my car if I don’t like it?
Yes, you can return the car within 30 days of purchase under the Consumer Rights Act 2015 if it fails to meet satisfactory quality, is not fit for purpose, or is not as described. Beyond this period, you may need to negotiate directly with the dealer or utilise your finance agreement’s terms for further options.
What happens if I find a fault with the car after the 30-day period?
After the initial 30-day period, you can request a repair or replacement from the dealer. If the repair fails to fix the issue, or if a replacement is not satisfactory, you may be entitled to a partial refund or to return the car, depending on the extent of the fault and the usage of the car since purchase.
Can I cancel my finance agreement at any time?
You can voluntarily terminate your finance agreement if you have paid at least 50% of the total finance amount, including any interest and fees, under the ‘half rule’ of the Consumer Credit Act. This applies to both HP and PCP agreements, but not to PCH leases, which may have different conditions and early termination fees.
Are there any penalties for returning a financed car?
Yes, potential penalties include early termination fees, as well as mileage and condition charges if the car is returned with excessive mileage or in poor condition, especially under PCP and PCH agreements. It’s essential to review your specific contract to understand any applicable penalties.
Who do I need to notify if I decide to return the financed car?
Notify both the finance company and the dealer. It’s important to communicate your intentions clearly and provide any required documentation, such as evidence of faults or reasons for dissatisfaction. Coordinating with both parties helps ensure that the return process adheres to legal and contractual obligations.
🚗 Further reading: How long can you finance a used car for?
