Can I hand my lease car back early?

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

  • Can I end my lease early?
  • How much will I have to pay to end my lease early?
  • How does Voluntary Termination work?
  • Will my credit score be affected by Voluntary Termination?
  • What do I do if I have defaulted on my car lease?

You can hand your lease car back and terminate your lease contract at any time. However, like with any financial contract, there is 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?

If you have a Hire Purchase Lease and you want to hand your car back early then you can. This arrangement is known as 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 the Consumer Credit Act (1974, Section 99) and should be included in any contract documentation you have signed for your vehicle. This right exists to offer protection to you as the consumer if you are no longer able to afford your monthly payments. Equally, the Act provides protection to Finance Houses, ensuring that borrowers can’t just walk away from their obligations at any time.

Signing legal agreement - hand lease car back early

How much will I have to pay to end my lease early?

The amount you will have to pay depends entirely on how long you’ve satisfied the contract for and the depreciation of the vehicle. Over the first year that it’s on the road, a car loses the most value. However, during the first year of your contract, your payments are no higher than at any other period. Your finance agreement spreads the cost of this depreciation out over time.

Example: You have a three-year lease contract. After one year you have decided you want to hand back your lease vehicle. The penalty you will have to pay in order to terminate the agreement will be larger than if you had made the same decision two years into the contract.

Depreciation of the car has been calculated and built into your monthly repayments over a three year period. If you’ve only paid one year of the contract (and therefore only one year of depreciation) then the Finance House will lose money by reclaiming a car that is worth less than the amount your payments have covered.

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

How does Voluntary Termination work?

To qualify for Voluntary Termination, you need to have paid 50% of the total amount payable across the total duration of your contract, including interest and fees.

Once you have done this you can hand the vehicle back with no further charges to pay.

Man walking away from car

There are three exceptions to this, and in these circumstances, you will incur further charges:

  • If the vehicle has not been properly maintained
  • If the vehicle has suffered damage outside of reasonable wear and tear
  • If you exceed your mileage allowance

Personal Contract Purchase (PCP) agreements mean that you (the customer) have the right to exit your agreement after half the total amount payable (50%) has been paid.

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What do I need to do to organise Voluntary Termination?

The first thing you should do is call your Finance House and discuss the options you have available.

If you’re struggling to make your payments the Finance House may be able to offer you some assistance that could help you avoid terminating the contract early. If you still decide to progress with an early termination then notifying the Finance House by phone in the first instance is best practice. Once you have made this initial contact you need to send a written Notice of Termination letter to your Finance House. If you’re not sure where to start, there are many websites that have templates you can use as guidance, including LegalBeagles.

Some Finance Houses 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.

Will my credit score be affected by Voluntary Termination?

Understandably, when considering something financial a common question is whether it will affect your credit score. We’re very pleased to be able to tell you that requesting an early termination to your contract will not affect your credit score as 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.

Woman checking her credit score on laptop

However, it’s worth knowing that if you’ve got any missed or late payments on your account then these could affect your credit score.

If you’ve 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 House is trying to claim costs because of missed payments.

Will I need to pay an excess mileage fee if I hand my car back early?

If you’ve satisfied the whole contract then you will be liable to pay any excess mileage fees if you have gone over your contracted mileage. Similarly, if you initiate a Voluntary Termination the contract before the end of the term and you have exceeded your pro-rata mileage allowance then you will have a fee to pay. This will be due to the fact that the value of a car is directly linked to its mileage and your Finance House could lose even more money if the mileage is higher than you have been paying to cover in your contract.

Can I terminate a Business Lease or Contract Hire agreement early?

Early termination is an option for contract hire vehicles, but the costs you will pay are much higher than 50% of the total value of your contract. Again, your contract paperwork will have details of the penalties.

What do I do if I have defaulted and my car is going to be repossessed?

If you have late payments or any missed payments on your finance account then it is possible the Finance House could seek to repossess the car from you.

Not only could you face repossession of your vehicle, but the Finance House will also charge you for:

  • The remaining lease balance
  • Any past-due payments
  • Costs for excess wear and tear and excess mileage (if applicable)
  • Costs associated with repossession
  • 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.)
  • Deficiency of the car on resale. This is when the Finance House 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.

In most cases, the Finance House will send an invoice highlighting the amount you need to pay, also referred to as the deficiency. If the deficiency remains unpaid, then the Finance House 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 House 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.

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Rachel Richardson
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26 Comments

  • Terence Mcalea| 29th January 2020 at 10:59 am Reply

    My friend has had a new lease car for two months he has only clocked up 350 miles unfortunately he has had a stroke and will never drive again, can his wife send the car back and will she have to pay ?

    • Rachel Richardson| 29th January 2020 at 12:14 pm Reply

      Hi Terence,

      Thank you for your comment. We are sorry to hear about your friend. We would recommend that your friend’s wife contacts the Finance House where the finance was arranged and the dealership and explains the situation to them.

  • Jeff Buckler| 21st January 2020 at 4:29 pm Reply

    Got a vehicle on a buisness lease coming to a end want me to sell car to a third party and produce a invoice of sale but not in buisness anymore

    • Rachel Richardson| 22nd January 2020 at 8:11 am Reply

      Hi Jeff,

      We have checked and though you aren’t in business any more you can still produce an invoice of sale. This is just a written invoice proving that you have sold the vehicle to a third party.

      We hope this helps.

  • phil| 31st December 2019 at 5:38 pm Reply

    hi i have had a car on pcp from march 2017 on a 4 year deal . would like to end the deal now . would that be possible? want to get a different car from a different dealer .

    • Rachel Richardson| 2nd January 2020 at 9:44 am Reply

      Hi Phil,

      As per our article: Personal Contract Purchase (PCP) agreements mean that you (the customer) have the right to exit your agreement after half the total amount payable (50%) has been paid. If you have paid half the total amount then you have the right to voluntary termination.

      If you are looking for a new vehicle and would like to go over your options once you have legally terminated your existing agreement, please contact Amanda on 01903 223391 and she will be able to help.

  • Duncan| 20th August 2019 at 10:05 pm Reply

    I have reached my VT point for my car next month and have rang the finance company to let them know I’ll be doing so. However they have said we owe £700 excess payment due to the service and MOT plan we took out with the deal although I’d be at the VT point. Everything was in our monthly payments, can they legally request this extra payment?

    Thank you!

    • Rachel Richardson| 21st August 2019 at 8:41 am Reply

      Hi Duncan,
      Thank you for your comment. You will need to check the fineprint of the agreement you signed. All the detail regarding the VT point and payments will be outlined in the Finance Agreement.

      If you are looking for a new vehicle following your VT, please contact Amanda on 01903 223391. We are able to get any vehicle that is sold in the UK and have access to multiple Finance Houses so can find you a package suitable for your needs.

  • Andy Hughes| 12th June 2019 at 9:13 pm Reply

    We leased a Range Rover Evoque from Lex Auto on a four year lease in March 2017. The vehicle has been an absolute nightmare with multiple fai,ire’s and ongoing problems mainly with the DPF. We have written to the lease company numerous times but they really aren’t interested and just keep fobbing us off whilst at the same time blaming us for not driving the vehicle correctly.
    Are we within our rights to ask for the agreement to be cancelled and return the troublesome vehicle early?

    • Rachel Richardson| 13th June 2019 at 2:23 pm Reply

      Hi Andy,
      Thank you for your comment. There may be a contractual route you could take. If you look at the original agreement there should be a box called “Termination Rights” and this figure is 50% of the total payable of the finance agreement. If you havepaid this amount to date, including the deposit and any administration fees, then you could use this clause to hand the vehicle back to the Finance House with nothing further to pay, as long as the vehicle is in good condition and within the agreed mileage pro-rata. This should not affect your credit file as this is a legitimate clause within the agreement. Keep us updated as to what happens. We hope that this advice helps.

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