Credit Score Basics > Does voluntary termination affect credit rating?

Does voluntary termination affect credit rating?

Wollit Team1 minute read · Updated 16th September 2024

Voluntary termination in the UK is a legal right that allows you to end a car finance agreement early, such as a Personal Contract Purchase (PCP) or Hire Purchase (HP).

This means you can give the car back to the lender without hurting your credit score too much. Here is how it works, and how it can affect your credit rating.

How does voluntary termination work?

When you choose voluntary termination, you return the car to the lender before your finance agreement ends. This is usually done when you can’t afford the payments or don’t need the car anymore.

To use this option, you must have paid at least 50% of the total amount you owe, which includes the loan amount, interest, and any fees.

To start the voluntary termination process, you need to inform your lender in writing, either by email or letter. You will be responsible for paying 50% of the total amount due, including interest and fees.

The finance company will check the car to make sure it’s in good condition. Once you’ve settled what you owe and returned the car, your agreement will be officially ended.

What are the alternatives to voluntary termination?

Before choosing voluntary termination, consider other options. If your car is worth more than what you owe, you could sell it and use the money to pay off the finance.

You can also talk to your finance company about your situation. They might help you by changing the terms of your agreement, like extending the payment period or reducing some interest to lower your payments.

How can voluntary termination affect my credit score?

The good news is that voluntary termination usually won’t hurt your credit score and your chances of getting loans in the future, including other car finance. However, you must have paid at least 50% and any extra fees for this to be the case.

Also, your credit report will show that you ended the agreement early, but it won’t specify why. Other lenders can see this, but it doesn’t mean they will automatically reject your future applications. However, the finance company you returned the car to might be less willing to lend you money again.