Voluntary termination (VT) is a legal way to end certain car finance agreements early and return the car to the finance company. It applies to PCP and HP agreements, but it’s one of the most misunderstood areas of car finance.
Many drivers assume voluntary termination lets them simply hand the car back and walk away. That’s not usually how it works. Whether it costs you anything – or makes sense at all – depends on the numbers in your agreement.
This guide explains:
- what voluntary termination is
- how it works for PCP and HP
- the crucial “50% total amount payable” rule
- when voluntary termination makes sense – and when it doesn’t
Do you need to catch up on the finer details of PCP car finance?
What is voluntary termination?
Voluntary termination is a statutory consumer right in UK law, as part of the Consumer Credit Act. It allows you to end a regulated car finance agreement early by returning the vehicle to the finance company.
It applies to:
As long as the agreement is regulated (which the above agreement types are), it doesn’t matter whether the car was new or used.
However, it’s important to understand what voluntary termination is not:
- It’s not the same as just stopping your payments
- It’s not the same as voluntary surrender
- It’s not always free
The law is there to protect consumers who can no longer afford their monthly payments. Equally, it provides protection to finance companies to ensure borrowers can’t simply walk away from their obligations at any time. It does this by setting the minimum repayment amount at 50% of the total amount payable (a very specific and complicated number that we explain further below).
PCP vs HP: How voluntary termination works differently
Voluntary termination applies to both PCP and HP, but it works very differently in practice.
Voluntary termination of a PCP
With a PCP agreement:
- Your monthly payments usually cover only part of the car’s value
- There’s a large final balloon payment at the end
- That balloon payment is included towards the total amount payable
This means many PCP agreements don’t reach the 50% repayment point until very late in the contract, well past the halfway point in the duration of the agreement. This is where many people go wrong.
Voluntary termination of an HP
With HP:
- There is no balloon payment
- Monthly payments repay the full value of the car plus interest
As a result, the halfway point is usually reached around halfway through the agreement, making voluntary termination much more practical on HP than PCP.
The “50% of Total Amount Payable” rule
To use voluntary termination without paying anything extra, you must have paid at least 50% of the total amount payable on your agreement.
This is the single most important rule – and the most misunderstood – and it has nothing to do with how long you’ve had the car.
What does “total amount payable” include?
It includes:
- the amount borrowed
- interest
- fees
- for PCP agreements, the final balloon payment
It is not based on:
- how long you’ve had the car
- how many monthly payments you’ve made
If you haven’t yet paid 50%, you can still terminate — but you’ll need to pay the difference to get up to that 50% amount.
Stuart says:
“Voluntary termination is about 50% of the money, not 50% of the time. On a PCP, the big final payment is included, so most people don’t reach the halfway point until very late. Check the total amount payable before assuming you can just hand the car back.”
What you may still have to pay
Even if you qualify for voluntary termination, you may still face additional costs.
These can include:
- A catch-up payment
If you haven’t reached 50% of the total amount payable, you’ll need to make up the shortfall. - Excess mileage charges
Only on PCP agreements, not on HP agreements. - Damage beyond fair wear and tear
Finance companies can charge for damage that goes beyond normal use. - Missing items
Such as spare keys, service history or accessories that came with the car.
Voluntary termination can limit what you owe, but it doesn’t always mean you can just hand the car back and walk away.
Voluntary termination vs. voluntary surrender
These two terms are often confused, but they are very different.
- Voluntary termination
This is your legal right. If you’ve paid 50% of the total amount payable, your costs are capped. - Voluntary surrender
Not a legal right. You hand the car back, but you can still be chased for the remaining balance after it’s sold.
Voluntary surrender is usually far more expensive and should only be considered as a last resort.
Does voluntary termination affect your credit score?
Using voluntary termination should not harm your credit score, as you are exercising a legal right built into the agreement.
However:
- Missed or late payments before termination can harm your credit record
- Simply stopping payments without formally terminating the agreement will also have a negative impact
Always make sure you end the agreement properly.
When voluntary termination makes sense
Voluntary termination can be useful if:
- you are at or close to the 50% repayment point
- your financial circumstances have changed
- the car is worth less than the amount needed to settle the finance
However, it often doesn’t make sense if:
- you’re early in a PCP agreement
- the catch-up payment is large
- the car has significant damage or excess mileage
In some cases, other options may cost you less overall.
How to start voluntary termination
If you decide to proceed:
- Check your agreement for the total amount payable
- Work out how much you’ve already paid
- Contact the finance company in writing and state that you are exercising your right to voluntary termination
- Arrange to return the vehicle to the finance company (which is not usually to the dealership where you bought it)
Keep copies of everything and get confirmation in writing.
Alternatives to voluntary termination
Depending on your situation, one of these may work out better:
- Early settlement – paying off the agreement in full
- Part-exchange – trading the car in against another vehicle
- Direct sale – selling the car to a dealership or car buying service, which will settle the finance on your behalf
Each option has pros and cons, and the best choice depends on the numbers in your agreement.
Key points to remember
- Voluntary termination is a legal right, but it’s not always free
- The 50% rule is based on money, not time
- PCP balloon payments are the biggest source of confusion
- Voluntary surrender is very different — and usually much worse
- One well-timed decision can save you thousands
This article was originally published in July 2014, and was most recently updated in February 2026.
