Can I hand my car back if I can no longer afford the monthly finance payments?
Some forms of finance allow you to return your car early, but there are rules to consider. Here's what you need to know...
It’s always important to make sure you can afford the monthly repayments before you buy a car on finance, but the rising cost of living means that circumstances can change, meaning some people can find themselves in financial difficulty.
If you’ve bought a car on finance and found that you can no longer afford the monthly repayments then it is sometimes possible to cancel the contract and hand the car back to the finance company without having to pay a penalty.
However, your ability to do so depends on the type of finance you have taken out and how much money you have already paid off.
Here, we explain exactly what you should do if you find you can no longer afford your monthly car finance payments.
I have a car on finance and I can’t afford the payments
If you pay for your car monthly and find you can no longer afford the repayments, the first thing you should do is speak to your finance provider. It is far better to be honest with them than to default on your payments, and they may be able to provide help.
Some lenders will be happier to assist than others, but they might suggest other solutions that could allow you to keep the car and make the payments more manageable. Options here include allowing you to defer the payments for a short period of time, or they may be willing to extend the period of the loan to reduce the cost of the monthly payments.
Again, being open with the finance company and attempting to arrange a solution is a much better idea than failing to pay. If you miss payments, you could affect your credit score, which could make it harder to get finance in the future.
What if I just want to hand the car back?
Whether you can hand your car back depends on the type of finance you have and where you are in the contract. If you bought your car using personal contract purchase (PCP) or hire purchase (HP) then you’re allowed to hand it back to the finance company if you have already paid off 50% of the loan, including any interest and fees. This is known as voluntary termination.
If you’ve yet to pay off 50% of the loan then you’ll have to make up the difference if you want to hand the car back. Equally, if you’ve paid off more than 50%, you won’t get that extra money back if you cancel the contract and return the car.
If you lease your car through a personal contract hire (PCH) scheme then it’s a lot more difficult to hand it back to the finance company early. You can return it, but you’ll probably have to pay back any remaining money you owe on the contract, so if you still have a year left, then the lender will expect a year’s worth of fees up front. In this instance, it’s better to contact the finance company and see what else you can arrange.
Can I sell my car halfway through a finance deal?
If you’ve bought a car on finance, such as a PCP or HP deal, you’re not the legal owner of the car until you’ve made all the payments. This means you don’t legally have the right to sell it privately.
However, you can trade it in with a car dealer because most major dealer groups have the ability to settle the outstanding finance on a car for you. The dealer will ask your current finance company for a settlement figure and factor the cost of this into a new finance agreement on another vehicle.
You can’t sell a car that’s on a PCH deal because this is a leasing deal and you don’t ever own the vehicle.
What happens if I refuse to pay the finance payments on my car?
Refusing to make your finance payments is never recommended — even if you're struggling to pay — because your car could be repossessed and it could end up costing you far more in the long run.
The car finance company will get in touch if you miss a payment, and when they do, you should talk to them then. If you don’t, and continue to miss payments, they will issue an arrears notice. They will eventually take the car back and could take you to court to charge you for the outstanding debt and interest on it.
The best thing to do if you can’t afford finance payments is talk to your dealer or finance provider as soon as possible to discuss options to reduce the finance or hand the car back. Getting a more affordable deal set up sooner will stop you from getting a bad credit rating, which could affect your ability to get finance in the future.
Could I reduce my payments by downsizing?
If you're struggling to meet your monthly payments and bought your car on a PCP or HP deal, it's worth talking to the supplying dealer. They may be able to help you find a more affordable model and help you end the finance contract early and transfer you over to a new one. This means you'll still have your own transport, but have smaller monthly bills.
It's also worth seeing if you could save money in other ways, such as finding cheaper insurance, driving fewer miles or taking out a servicing plan to spread the cost of maintenance.
If you used a personal loan or credit card to buy your car and can’t afford the repayments, then you’ll likely have to sell the car to cover the money you owe.
Next: read the What Car? guide to car finance >>
For all the latest reviews, advice and new car deals, sign up to the What Car? newsletter here
Buy a new car with What Car?
Before you buy, visit What Car?’s new car deals section.
We have discounted deals on most new cars on sale, so you're never far away from finding a new car deal in your area.
It's all based on Target Price, which is the price we think you should pay based on research by our team of mystery shoppers, and the best discounts they can achieve.
FAQs
In some circumstances you can just end a car finance deal and hand the car back — but in others this could end up costing you a lot of money, so it's not always the best thing to do.
If you're paying for your car on a personal contract purchase (PCP) or hire purchase (HP), you can hand your car back once you've paid at least half of the original loan amount. But if you've paid more than 50% of the cost back you won't the difference back.
If your car is on a personal contract hire (PCH) deal (also referred to as a car lease), it's likely you'll need to meet all the outstanding payments to terminate the agreement early.
In all instances, talk to the finance company as soon as possible to work out a deal that lets you keep the car or swap it for something more affordable.
As long as you've paid at least 50% of the original finance amount you can give your car back to the finance company and walk away on a PCP or HP deal. However, you'll lose any additional payments you've made above 50%. On a PCH deal you can also give the car back, but you'll be hit with either early termination fees or be required to pay all the outstanding installments.
If your circumstances change and you can no longer meet the monthly payments for your car, speak to the finance company directly. They may be able to extend the length of the finance agreement to make the monthly payments smaller, or you may be able to trade your car in for a cheaper model to help reduce the costs.
Don't simply stop making payments, or ignore the finance company if they get in touch. That could result in an arrears notice which could harm your credit rating, the possibility they'll repossess the car and the likelihood you'll need to pay the outstanding balance plus interest.
You're likely to lose out financially if you return your car before the finance agreement ends. If you bought it on a PCP or HP agreement, you can return your car without fees once you've paid off at least half of the finance amount. If you've paid any more than this you'll lose that money.
On a PCP deal, there is usually some equity on the car at the end of the agreement, which you can put towards a new vehicle or keep if you pay off the optional final payment (usually called the balloon payment) and then sell the car. However, if you return the car without exchanging it for a new one, or making the final payment, you'll lose out on a large chunk of money.
The situation is worse if you've taken out a PCH lease agreement because you're likely to be asked to pay the entire outstanding balance, which could be £1000s.
