How to cancel your car finance agreement

Signing up for any kind of credit agreement can be fraught with uncertainty, especially if you’re concerned that your financial situation could change - no one wants to be tied into a deal they can no longer afford because of circumstances that are out of their control.

If you’ve ever wondered whether you can cancel a credit arrangement when buying a car or want to know how to get out of a car finance agreement, here’s all the info you need.

Cancelling car finance within 14 days

All agreements come with a 14-day car finance cooling-off period, which means you have a legal right to withdraw from the arrangement or cancel it within the first 14 days of signing the contract.

To cancel your credit agreement within the 14-day cooling-off period, you need to contact the lender directly. This is known as ‘giving notice’ and you don’t have to give any reason for changing your mind.

If the lender has already paid the money into your account, you’ll need to return this in full within 30 days.

Cancelling car finance after 14 days

If you want to cancel after the 14-day car finance cooling-off period, you’ll essentially be paying off the arrangement early and will be bound by the terms of the credit agreement.

Hire purchase car finance, conditional sales and personal loans may charge an additional fee for early repayment, but you should save on interest when paying off the agreement early.

PCP car finance contracts are a little more complicated, because of the way this type of finance works. The thing to remember about PCP finance is that you’re making fixed payments based on the depreciation value of the car. This means the remaining balance left to pay could be more than what the car is worth.  

If you cancel your finance in this situation, your lender will likely ask you for additional payments, to make up the difference between what’s owed and the car’s value.

Requesting an early settlement figure

If you want to cancel any credit agreement after the 14-day car finance cooling-off period, you’ll need to get in touch with your lender and ask them for an ‘early settlement figure’. This is the total amount you’ll need to pay to clear the finance agreement in full, including any interest and fees.

The lender will tell you how much you need to pay to clear the finance and give you 28 days to make the repayment. Asking for an early settlement figure doesn’t mean you then have to make the repayment in full. If you don’t pay the settlement within 28 days, your credit agreement will carry on as normal.

You might also be able to pay off part of the loan to help reduce the interest you owe. If you want to do this, you should first get in touch with the lender to find out what impact making the repayment will have on your current agreement.

It might be worth using a car finance calculator before you speak to your lender, so you can work out whether you want your repayments to be of similar amounts and simply cut the overall length of the credit agreement.

Can I cancel a car finance agreement if my car is in negative equity?

Negative equity is when the market price for your car is worth less than the settlement figure you need to pay to end the finance on it.

If your car is in negative equity, you can still cancel the agreement but you’ll likely need to pay the difference between what's owed and the car's value. In this instance, it’s important to consider if it’s the right time to change.

Although most car finance agreements are designed to help ensure that the vehicle is in positive equity when your agreement ends, there’s always the risk that things might not work out as planned.

There are several reasons this could happen, but the most likely causes are:

• That the car’s value has depreciated quicker than expected
• It’s been involved in an accident that has lowered its value
• It’s not been returned in the expected condition
• You’ve not stayed within your agreed annual mileage limit

If you find yourself in this position, Zuto might be able to help. For more information check out our guide to negative equity car finance or contact one of our car buying experts on 01625 619944.

Car finance repayment FAQs

If you’ve any more questions about cancelling a finance agreement for a car, check out some of our frequently asked questions below.

Can I pay off PCP early?

You can settle a PCP agreement at any stage by paying the settlement figure you’ve been given by the lender.

Can I change my car on PCP early?

PCP contracts are usually pretty flexible, and you should be able to switch cars mid-contract by getting in touch with your lender and paying the settlement figure. If you’re cancelling PCP within 14 days, get in touch with your lender who should be able to arrange a simple return.

If you’re changing after the car finance cooling off period, you can then either pay the settlement figure, buy the vehicle outright and part-exchange it when you buy a new one, or trade-in your current car for a new one on a PCP contract. But before you do anything, it’s important to make sure you’re not left out of pocket.

If your car is worth more than the settlement figure, this will be enough to pay off the current finance and means you should even have money left to put towards the new one. But if your car is worth less than the settlement figure, you’ll need to pay the difference, which can make things quite expensive.

Will cancelling a car finance deal affect my credit score?

When you take on any type of finance, a record of it is kept on your credit file. If you cancel a car finance deal early, this will also show on your credit file. But early settlement won’t necessarily have a major impact on your credit score, so long as you haven’t fallen behind on any payments.

If you’re concerned you might not be able to get car finance with bad credit, give the team at Zuto a call.

Who pays for repairs on a PCP car?

Unless you’ve also signed up for a maintenance package, you are responsible for all costs of owning a car, including servicing, repair, and MOT.

Can I give my car back to the finance company?

Whether you can return your car to the finance company depends upon the type of loan you used to buy the vehicle.

Returning a car early on PCP or HP finance

If you’ve bought a car using PCP or HP, you can return it to the finance company so long as you’ve paid off 50% of the loan, including any interest and fees.

If you’ve paid less than 50% of the finance, you can still hand the car back, but you’ll need to also pay the difference to make up the 50% of the loan. If you’ve paid more than 50% of the loan and handed the car back, you won’t be given any refund.

If you have any more questions on car finance, the team at Zuto are on hand with even more help and advice. Give us a call on 01625 619 944.

Ryan has worked at Zuto for a number of years and uses his experience within the industry to help customers understand the ins and outs of car finance.