Car finance policies can be terminated ‘without penalty’ if road users have this one thing
Car finance deals can be voluntarily terminated as long as at least half of the total contract has been paid off by the driver. The policy could prove a lifeline to many motorists who wish to avoid paying monthly costs on a vehicle they can’t drive during the coronavirus pandemic.
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Termination is possible if motorists finance deals are under Personal Contract Plans (PCPs) which account for 75 percent of overall finance plans.
The Finance and Leasing Association also says almost 40 percent of used car leases were made on PCP plans.
Speaking to Express.co.uk, AA Cars expert James Faircloigh said drivers on the agreement would be able to hand a car back as long as certain clauses were met.
He said: “For drivers with a PCP plan who have paid back 50% of the total amount payable, they can return the car without any penalty. This is known as a voluntary termination.”
However, Mr Fairclough warns motorists must make sure they have paid back at least 50 percent before considering the option.
He says many drivers who have used up 50 percent of their contact may falsely believe they have also paid 50 percent.
But higher payments are usually taken towards the end of a contract meaning only those towards the end of a finance arrangement may be able to take advantage of the offer.
Mr Fairlough said: “To do this, you have to have paid off half of everything that’s owed including the fees, an initial deposit, interest and balloon payment, which is the lump sum the lender would have been due at the end of the agreement.
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“It is worth noting that you are unlikely to have paid 50 percent of the total amount payable when you reach the halfway point in your contract.
“The bulk of the vehicle’s value is weighted towards the end of the term through the balloon payment.
“However, if you are further through the plan, then you may be in a position to be able to return the vehicle.”
Car finance agreements can only be terminated if the car has not suffered more than a reasonable level of wear and tear.
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Motorists may also be charged a small fee from the dealer for deciding to end an agreement early.
Lenders may also charge drivers for any additional mileage if they have exceeded the agreed cap.
However, motorists who wish to save money may not need to completely get rid of their car to do so.
Also those on Personal Contract Hire agreements may not be able to get out of a contract as these are usually committed for a whole duration.
To save on costs, many providers sometimes allow you to defer payments which may help budgeting during the crisis. PCP plans are finance policies in place for those looking to purchase a vehicle so many may decide to instead pay a lump sum upfront to avoid monthly payments.
According to Mr Fairclough, lenders will understand the difficulties people are in at the moment and may offer solutions such as payment holidays.
These work in the same way as a mortgage holiday and allow drivers to temporarily suspend payments.
Monthly costs will then be realculated after the crisis which will result in a small rise.
Lenders may also offer an extended loan term which is likely to decrease overall monthly payments.
However, ignoring the issue and failing to pay the bill could drastically affect your credit score.
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