What is a cooling-off period?

So you’ve just signed on the dotted line of your brand-new car finance agreement, with your dream car firmly within your sights. What happens if something changes and you change your mind?
 
If you’ve signed all the paperwork, but have just realised it wasn’t the right choice for you, you do have the right to withdraw whilst in the cooling-off period. This is a 14-day window after entering a credit agreement that allows you to walk away from it without facing any penalties.
 
Terms and conditions will apply, and although you don’t have to be stuck with a finance agreement that could hang over your head for years, you may still need to pay the lender back for the funds you borrowed.

If you’ve already bought a car then the dealership may allow you to return it for a full refund, which will allow you to pay off the finance with the lender. There’s no guarantee that a dealer will agree to this so it’s worth checking the dealer’s T&Cs before deciding on the next steps.

If you have only agreed to buy the car but have yet to complete the purchase and want to pull out then you might lose your deposit.
 
But how does a cooling-off period work? And can you really walk away without any penalties?
 
Read on to find out everything you need to know about car finance cooling-off periods:

What is a cooling-off period?

Taking out a finance agreement is a serious commitment – and one that can last up to six years.
 
If you’ve just signed the dotted line, but now think you might have made a mistake, the good (or the relief!) news is that you can still walk away.
 
That’s because you’re in the cooling-off period. This is a consumer right that falls under the Consumer Credit Act 1974. Within the first 14 days after you’ve entered a credit agreement, you have the right to cancel and walk away without facing any penalties.
 
You don’t even have to give a reason; if you took out your loan or credit agreement in the heat of the moment but now you’ve cooled off and changed your mind, you have the right to walk away from the agreement.

If you do decide to change your mind and cancel your car finance agreement you will need to return the funds borrowed to your lender. As these funds are (typically) tied up in a car you will need to contact the dealership involved to discuss the next steps.

You may well be able to work with the dealership to agree to accept the return of the car purchased, and this may put any deposit amount at risk depending on the car dealer's discretion.

How does a cooling-off period last?

Your cooling-off period will last 14 days, but it’s important to know when the clock starts. The countdown will usually either begin the day after you signed the agreement when you receive a copy of the agreement, or when you receive the loan payment in your bank account.

Double-check the small print on your contract so you know exactly when time will run out for you.

How to cancel an agreement during a cooling-off period

If you’ve had sleepless nights ever since signing your finance agreement, you’ll be pleased to know that cancelling during the cooling-off period doesn’t have to be complicated.
 
First, let your lender know. Explain that you want to cancel and you’re still in your cooling-off period (you can even quote the legislation if you want that extra backup). If you’ve contacted them by phone, they might ask you to also confirm in writing.
 
Once the lender knows what’s happening, it’s time to deal with the car. Some dealers might let you walk away, but if you’ve already signed paperwork or are simply head over heels for those new wheels, you’ll need to organise another way to pay the lender back for the funds borrowed.

Will I get my deposit back?

Putting down some cash upfront towards your next car purchase can reduce the amount you need to borrow and could even help improve your eligibility if your credit score could do with a little TLC.
 
Unfortunately, that deposit can be a casualty of choosing to cancel during your cooling-off period and deciding not to continue with your car purchase either. 

Your car finance agreement and car purchase are two separate contracts. While you won’t face any penalties for cancelling your finance during the cooling-off period, however you might be at risk of losing your deposit if you also decide to cancel your car purchase rather than find a new type of finance to keep it.
 
It all depends on the terms and conditions of your contract with the dealer who is selling you the car. In many cases, the dealer doesn’t have to refund your deposit if you change your mind and want to pull out of buying the car too.
 
You might still be able to get your money back if you signed the contract at a distance (not in the dealership), but this isn’t an automatic right and entirely depends on the dealership’s policy.

How do I return the car?

Your finance agreement isn’t the same as your contract to buy a car. While you can exit the agreement during the cooling-off period, that doesn’t mean you can just walk away from your new wheels too.
 
If you’ve fallen out of love with your new car and want to start fresh with a new vehicle and a new finance agreement, you might be able to return the car and get your money back – but there are no guarantees.

Already signed the paperwork? If you’ve committed to buying the car (vehicle order forms can count as a legal contract), you may be able to pull out of the sale but you might lose your deposit.

You’ll still need to find another way to pay the lender back for the car, whether that’s in cash or with a different type of finance. If you’ve already bought the car, you might be able to return the car to the dealership for a refund but there’s no guarantee that they will allow this.
 
Different rules may apply if you haven’t yet signed the agreement for the car, or you’ve bought it at a distance such as online or over the phone.

When a 14-day cooling-off period doesn’t apply

Did you know that the 14-day cooling-off period applies to almost all car finance agreements? It doesn’t matter whether you chose a hire purchase, personal contract purchase, or personal loan or agreed to the contract in person, over the phone, or online.
 
Beyond finance agreements, you might not be so lucky. Cooling-off periods don’t usually apply to things like hotel bookings, restaurant reservations, courier services, or car rentals (as much as we might wish it would!)

Where can I find my cancellation rights?

Don’t skip the small print! While wading through the details of a contract isn’t many people’s idea of a great time (apologies to all the solicitors reading), you’ll find all the cancellation information you need to know in the terms and conditions of your agreement.
 
Your lender should make sure these rights are outlined clearly and fully understood before you sign anything. It’s worth taking time to check you’re completely happy – and perhaps even take time to run it by a trusted friend or family member – before taking the next step.