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Can I hand my lease car back early?

If I wanted to end my lease contract early can I just hand the car back?

You can hand your lease car back and terminate your lease contract at any time. However, like with any financial contract, there will be a penalty for doing so. The penalty for terminating your lease contract early will depend on a number of factors. Primarily it will depend on how long is left on the lease contract. In this article, we’ll take you through the process for each lease type. We’ll also detail what financial penalties you could expect to pay.

 Can I hand my lease car back early? | HP and PCP|

If you have a hire purchase lease and you want to hand the lease car back early then you can. This is known as a voluntary termination. Voluntary termination is the legal right of a borrower (you) to cancel your finance agreement early.

The right to voluntarily terminate your regulated Hire Purchase (HP) or Personal Contract Purchase (PCP) agreement is provided in UK law (Consumer Credit Act 1974, Section 99) and should be included in your contract documentation. It exists to offer protection to consumers who can no longer afford their monthly payments. It equally provides some protection to finance companies. This is to ensure borrowers can’t simply walk away from their obligations at any time.

Books, Scales and Hammer

How much will I have to pay?

Handing your vehicle back early because you have seen something else? Wondering if you should you buy or lease your next vehicle? Find out here

The amount you have to pay will depend entirely on how long you have satisfied the contract for and the depreciation of the vehicle. A car loses the most value in the first year of being on the road. However, your payments are not higher in the first year of your contract. Your finance agreement spreads the depreciation out over time.

Example: Your lease contract was for three years and after one year you want to hand back your lease car. The penalty to pay will be larger than if you had satisfied two years of the contract. Depreciation of the car would have been calculated and built into your monthly repayments over a three year period. If you have only paid one year of depreciation then the finance company will lose money by reclaiming a car that has a lower value than your payments have covered.

The exact amount payable will be written in your contract. Make sure you have the remaining fee available to end your agreement.

How does voluntary termination work?

To qualify for voluntary termination, you need to pay 50% of the total amount payable including interest and fees. Then you can hand back the car with no further charges. The only exception is if the vehicle has not been properly maintained. Or if it has incurred damage above reasonable wear and tear. Finally, you may also be charged if you exceed your mileage allowance. PCP agreements mean that customers have the right to exit their agreement after half the total amount payable has been paid.

Calculator, cash and a pen

What do I need to do next?

Call your finance company and discuss your options. If you’re struggling to make your payments they may be able to offer you some assistance to avoid you having to terminate the contract early. If you still decide to progress with an early termination then notifying by phone in the first instance is best practice. Then, send a notice of termination letter to your vehicle finance company. If you’re not sure where to start, here’s a great template letter. Some finance companies will have an early termination form which you’ll need to complete before they will collect the vehicle. Make sure before you sign that you agree with everything listed in the clauses. You could end up paying additional fees that you weren’t expecting. The finance company will then contact you to arrange final payments and collection/inspection of the vehicle.

Handing your vehicle back early because you have seen something else? Wondering if you should you buy or lease your next vehicle? Find out here

Will my credit score be affected?

A common question asked by people considering early termination is whether it will affect their credit score. I’m pleased to tell you that this will not affect your credit score because you are satisfying the agreement within your legal rights. The voluntary termination will be noted on your credit file, but this is nothing to worry about. There could be many reasons why the contract was terminated and no details are disclosed in the notes against this entry. In short, this will not affect your ability to claim future credit. The finance company providing you with the loan may not favour lending to you in future, but broadly speaking your ability to claim credit will not be affected.

However, If you have missed or late payments on your account this could affect your credit score.

Gentlemen holding mobile with credit score on drinking a cup of coffee

If you have previously defaulted on your contract then your lease company can refuse your request to terminate the agreement early. The rules for voluntary termination are different if the finance company are trying to claim costs because of missed payments.

Will I need to pay an excess mileage fee?

If you satisfy the whole contract then excess mileage fees are payable if you go over your contracted mileage. Similarly, if you voluntarily terminate the contract before the end of the term and you have exceeded your pro-rata mileage allowance then there will be a fee to pay. This is because the value of a car is directly linked to its mileage and your finance company could lose even more money if the mileage is higher than what you have been paying to cover.

Handing your vehicle back early because you have seen something else? Wondering if you should you buy or lease your next vehicle? Find out here

Can I terminate a business lease or contract hire agreement early?

An early termination is an option for contract hire vehicles but the costs are much higher than 50% of the total amount payable. Again, your contract paperwork will have details of the penalties.

If you have defaulted and are facing repossession of your car

If you have missed or have late payments on your finance account then the finance company could seek to repossess the car from you. Not only that, you will be charged for:

  • The remaining lease balance
  • The past-due payments
  • Amounts for excess wear-and-tear and mileage (if applicable)
  • The costs of the repossession, and
  • The costs of resale (such as cleaning), if the lessor decides to sell it after the repossession. (Once the lessor repossesses the car, it will usually sell it through a private sale or public auction.)
  • The deficiency of the car on resale. This is when the finance company sells the vehicle but the sale price does not meet the amount needed to satisfy your lease. In this instance, you will be required to pay the difference.
Hand holding small toy car

n most cases, the finance company will send an invoice highlighting the deficiency amount for you to pay. If this remains unpaid then the finance company can direct the case to a third-party collection agency. Should a collection agency be instructed then the fees can soon mount up and become astronomical.

If you do not pay the deficiency then the finance company can file a court judgement. The court can order the money to be paid directly from your salary or seize your bank account. If you can, it is best to enter into a voluntary agreement with your finance company or opt for voluntary termination.

Handing your vehicle back early because you have seen something else? Wondering if you should you buy or lease your next vehicle? Find out here
Faye Lindeck

Faye Lindeck

Faye enjoys Music, Dog Walking and Socialising with friends.

Faye is an experienced blogger with a keen eye for finding excellent information about the subjects she writes about. Giving OSV blog readers the most accurate knowledge.
Faye Lindeck

10 Comments

  • Sandra| 21st July 2018 at 9:35 pm Reply

    Hi can I hand back a car after 3 weeks on a pcp deal the car I have is causing me really bad pain in my bottom and thigh! I’ve tried different support and cushion but nothing helps this pain, one never had any issues driving any other car in the past, any advice much appreciated thanks

    • Abbie Rawcliffe| 24th July 2018 at 11:58 am Reply

      Hi Sandra, I am really sorry to hear that your current vehicle is not comfortable. Unfortunately, you will not be able to hand the car back. You will need to get a settlement figure from the funder to understand the cost to get out of the contract unless the dealership gave you any reassurance it would not cause you the pain you are experiencing. We would be more than happy to look into what options are available to you, but we would need to know the settlement figure first. If you need any further information or would like to talk this through in more detail, please do call us on 01903 538835.

  • Carrie Underhill| 26th March 2018 at 6:50 pm Reply

    We lease a car as part of a salary sacrifice scheme through my partners work. About a year ago it started to develop a noise within the engine. It went into the garage on two separate occasions but wasn’t fixed. Six weeks ago the noise got worse so we booked it in the same garage. After being messed around by the garage and lack of communication from them, we were told that the problem had been fixed and the car would be ready for collection today. Unfortunately this was not the case and I received a call to say they are having problems reprogramming it. My question is are we within our rights to end the lease early (it has 3 months remaining) as I have lost all confidence in the garage to fix it correctly and in the car to not break down and leave me stranded.

    • Abbie Rawcliffe| 27th March 2018 at 1:43 pm Reply

      Hi Carrie, From a legal standpoint we don’t believe you would have the “rights” to hand the vehicle back early to the funder. We suggest you call the company who manages the Salary Sacrifice scheme and tell them what is happening and ask them if they would take the vehicle back early. The other option would be to get an early settlement figure to hand it back sooner. We would love to have the opportunity to discuss with you what you would like as your next vehicle. If this is something you would like to do, please call me on 01903 538835 where I can put you in contact with one of our Vehicle Specialist to see if we can help.

  • Adil| 8th March 2018 at 5:18 pm Reply

    Got a car under a Hire Purchase Lease for 5 years. Am I able to hand it back after 9 months of having it and if so, how much would I have to pay to get out of it

    • Abbie Rawcliffe| 13th March 2018 at 8:49 am Reply

      Without seeing the Agreement we can not say, however it will depend on how much deposit you paid, if you have a look at the finance agreement you will have a section called “Termination Rights” and in this box will be a figure, this will be half of the total amount payable, which includes the deposit, once you have paid this amount you can hand it back as long as you have kept to all the other conditions of the agreement. Alternatively, if this is not an option you can ask for a “Settlement Figure” then sell or part exchange the vehicle to clear the finance. If you are looking for another car then give us a call and we can have a look for the best way for you to move forward.

  • Trevor McCurdy| 1st December 2017 at 8:11 pm Reply

    Hi. I have a car on a four year lease agreement. Can I voluntarily terminate the agreement after two years without excess fees.

  • ANDREW JOHNSON| 19th July 2017 at 5:22 pm Reply

    HI If I a mechanical failure of the car which I think should be repaired under warranty, and they think I should pay, can i just hand it back as protest??

    • Abbie Rawcliffe| 21st July 2017 at 8:59 am Reply

      Unfortunately, no you can’t hand it back in protest. If you disagree then you will need to go to another Franchised Dealer for a 2nd opinion. Normally a mechanical failure would only not be covered if the vehicle had not been serviced using original manufacturer parts and Dealers or the vehicle had been customised or used off the public road, such as a race track. If they consider a breach of the warranty has happened then they should tell you.

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