These options can be confusing, especially when trying to determine which is right for your situation. In this article, we’ll dive into the details of both voluntary termination and voluntary surrender, clarifying the differences and helping you make an informed decision.
Understanding voluntary termination of car finance
Voluntary termination is a legal right available to consumers in the UK who have taken out a car finance agreement, typically under a hire purchase (HP) or personal contract purchase (PCP) agreement. It allows you to end the agreement early, provided certain conditions are met.
Under the Consumer Credit Act 1974, if you’ve paid at least 50% of the total amount payable under your car finance agreement, you have the right to return the car and walk away without owing anything further.
This amount includes any fees, interest, and the car’s value itself. Voluntary termination is designed to protect consumers from being trapped in an agreement they can no longer afford.
When you opt for voluntary termination, you’re essentially telling the finance company that you want to end the contract early and return the car. If you’ve met the 50% payment threshold, you can hand back the vehicle and owe nothing further.
However, if you haven’t reached that 50% mark yet, you’ll need to make a payment to cover the difference before you can terminate the agreement.
What is voluntary surrender?
Voluntary surrender, on the other hand, is when you return the car to the finance company because you can no longer keep up with the repayments, but you haven’t met the conditions for voluntary termination. Unlike voluntary termination, voluntary surrender does not absolve you of the remaining debt.
When you voluntarily surrender your car, the finance company will sell the vehicle, usually at auction. The sale price is then used to reduce your outstanding debt.
If the sale price is less than the amount you owe (which it often is), you’ll be responsible for paying the remaining balance. This could leave you with a substantial debt to clear, even though you no longer have the car.
The difference between voluntary termination and voluntary surrender
While both voluntary termination and voluntary surrender involve returning your car to the finance company, the financial outcomes for you as the borrower are vastly different.
Voluntary Termination
This option is more favourable if you’ve paid at least 50% of your car finance. It allows you to return the car and end the agreement without further financial obligations, provided the car is in good condition.
You may still be liable for damage or excessive wear and tear, but you won’t have to pay the remaining balance of the finance agreement.
Voluntary Surrender
This option is typically considered when you can no longer afford the repayments, and you haven’t paid off 50% of the finance agreement.
You’ll return the car, but the outstanding debt won’t disappear. The finance company will sell the car, and if the sale doesn’t cover your remaining balance, you’ll have to pay the shortfall.
In essence, voluntary termination is a right under UK law that can protect you from further financial burden, while voluntary surrender is more of a last resort, often leaving you with debt even after the car is gone.
Which option is right for you?
Deciding between voluntary termination and voluntary surrender depends on your specific situation. If you’ve paid off more than 50% of your car finance and the vehicle is in reasonable condition, voluntary termination is usually the better option.
It allows you to walk away without further financial obligations, which can be a huge relief if you’re facing financial difficulties.
However, if you’re struggling with repayments and haven’t yet reached the 50% mark, voluntary surrender might seem like the only option.
It’s important to understand that while this will get the car off your hands, it may not eliminate your debt. You’ll still be responsible for any shortfall if the car’s sale price doesn’t cover the remaining finance.
Considerations before making a decision
Before deciding on voluntary termination or voluntary surrender, there are a few things you should consider:
Condition of the car
If your car has excessive wear and tear or damage, you might be charged additional fees under voluntary termination. It’s essential to have the vehicle in good condition to avoid these extra costs.
Outstanding balance
Calculate how much you’ve paid towards the car finance. If you’re close to the 50% mark, it might be worth making a final payment to reach that threshold, allowing you to opt for voluntary termination.
Impact on credit score
Both voluntary termination and voluntary surrender can impact your credit score. However, voluntary termination is generally viewed more favourably by lenders, as it shows you acted within your legal rights, whereas voluntary surrender might be seen as a sign of financial distress.
Future finance
If you’re considering getting another car on finance, keep in mind that terminating or surrendering a car finance agreement could affect your ability to secure future loans or finance deals.
Final thoughts
Voluntary termination and voluntary surrender are two very different options for ending a car finance agreement, each with its own implications.
Voluntary termination offers a way out with minimal financial impact, provided you’ve paid at least 50% of the total amount. Voluntary surrender, however, might leave you with ongoing debt even after the car is gone.
It’s crucial to fully understand the terms of your finance agreement and consider your financial situation before making a decision.
If you’re unsure, it might be wise to seek advice from a financial advisor or legal professional to ensure you’re making the best choice for your circumstances.
