With all the fuss over the VW emissions scandal, voluntary termination has been a hot topic or many VAG owners. Many owners now consider their car a liability and are looking to move on. What many people fail to understand us their right to VT / voluntary terminate their vehicle finance agreement without penalty.
What is VT / voluntary termination?
Voluntary termination is a process by which you, the consumer have a right to terminate a regulated credit agreement when you have “paid off” 50% of the total amount payable. You are within your rights to terminate at any point after the 50% mark however if you are under this threshold you will be liable for the remaining balance which makes up the 50%.
This process allows a vehicle to be returned before the end of the finance agreement with little to no penalties dues. More on that later.
Essentially, as long as you’ve paid back over 50% of your agreement you can give the car back at no further cost.
The voluntary termination process is covered under the consumer credit act 1974. You can read more about the Consumer credit act 1974 here – scroll down to section 99.
What types of finance agreements will let me voluntary terminate
There are three main types of car finance available in the UK. These are:
- Personal contract purchase (PCP)
- Person Contract Hire (PCH)
- Fixed sum loan / bank loan
You may only voluntary terminate a personal contract purchase (PCP) finance agreement. These types of agreements are very popular in the UK. They allow the financing of a car which may not be financially viable by a bank or fixed sum loan.
PCP finance consists of a small deposit followed by a fixed term of repayments. After this term the vehicle can either be handed back or the balance of the remaining value in the vehicle settled. Essentially the vehicle is owned by the finance company unless the “balloon” payment is settled.
In essence you are simply paying off the depreciation of the vehicle, meaning you can afford a much higher value vehicle than one financed through a conventional repayment loan. This reduces monthly payments but may leave you with nothing to show for your payments if you simply return the car at the end of the agreement.
How much to I need to have paid before I can voluntary terminate?
Read more ›