Can I end my PCP agreement early?

Splitting the cost of financing a new car into smaller, monthly repayments with a Personal Contract Purchase (or PCP) agreement can be a great way to manage your money. But agreements can last up to four years, and a lot can change in that time; your job or living arrangements might be different, or you might need to switch to a different vehicle to better suit how your life looks in four years’ time.

There are lots of reasons you might want to end your PCP agreement early, and it is possible, although the options available to you will depend on where in your agreement you are. We’ll explain the different choices and help you work out what’s best for you.

What are my options?

Voluntary Termination (VT)

If you’re struggling with repayments or no longer want the car you’re currently driving, Voluntary Termination might be the right option for you. This is your legal right under the Consumer Credit Act 1974, and it lets you end your PCP agreement and return the car at any time.

You’ll need to speak to your lender and let them know that you want to voluntarily terminate your agreement. However, you should be aware that you’ll need to have paid at least 50% of the total amount due, including the final balloon payment. If you haven’t quite reached that 50% mark yet, you’ll need to pay up to that point when handing back the car and ending the loan.

If you've already paid over 50%, you can return the car without needing to pay any more of the repayments, although you may still have additional charges if the car is damaged, or if you have any missed repayments outstanding.

Although a VT will show up on your credit report, it’s usually viewed more positively by future lenders if you and your current lender have mutually agreed to end a contract early, compared to missing repayments. It’s important to know, though, that if you have multiple VTs on your credit history, future lenders might be more reluctant to lend to you if they think you’ll terminate an agreement, so it’s not something to take lightly.

Early settlement

Another option to consider is early settlement. This means you can pay off the remaining balance of your loan early and keep the car. The settlement figure is the amount you have left to pay minus any future interest, which you won’t need to pay. However, some agreements may charge an early settlement fee, so be sure to double-check your contract or talk to your lender first.

Once you’ve made the full settlement payment, the car is yours! If a lump sum payment isn’t ideal for you, refinancing is another option, which allows you to create a new agreement to pay off the balance.

Part-exchanging for a new car

If you’re ready for a different vehicle, you might be able to use any equity you’ve built up in your current agreement toward a new finance deal. This can be a great choice if you want to end your current agreement early and switch to a car that fits your needs better.

Refinancing the balloon payment

If it’s the final balloon payment you’re having trouble managing, you can refinance it into smaller, more affordable monthly payments. This way, you can still keep the car without the stress of a large lump sum payment.

How to decide the best option for you

The right option for your specific circumstances is usually the best one, and it’ll depend on where you are in your agreement, and what you want to get out of it.

Voluntary Termination can make the most sense if you have paid more than 50% of the total amount payable (including the final balloon payment as well as your monthly repayments and interest), and you don’t want to keep the car.

If you want to keep the car, or if you’ve a bigger chunk left to pay, you might be better off to settle early by paying off the final amount, or refinancing with a new agreement.

You’ll want to take any additional charges into account too, as these can impact your final balance quite significantly. Early settlement fees, negative equity, and admin fees or charges might not balance out the savings you’ll make on interest if you end your agreement early. It’s always a good idea to check the maths before you make a decision.