Ending a Vehicle Lease Early


author image - crispin

By Crispin O'Toole-Bateman

on Monday 20 August 2018


Woman driving a car

You may find yourself in a financially comfortable situation, where leasing a car is an affordable and sensible decision.

However, circumstances in life can change; your financial situation may unexpectedly alter due to a certain life event - leaving you no choice but to finish your vehicle lease early.

If this is the case, you are within your legal rights to terminate your agreement early. Breaking a car or van lease early, however, could lead to you paying a termination fee that is set and calculated by the vehicle funder.

Before you think of getting out of a vehicle lease, you should try to understand the situation in full. This page will explain everything you need to know.

Skip to a section in this guide:

What is an Early Termination?

Understanding the Different Terms

What to Do First

Consumer Credit Act: Ending Car Finance Early

Repossession and Voluntary Surrender

Your Rights

 

What is an Early Termination?

Giving back your car for any reason before the end of the originally agreed contract term is considered an early termination, and you will be subject to termination costs depending on the exact circumstances.

Reasons for early termination of a car lease include:

  • A change of circumstances meaning that the monthly payments are no longer affordable.
  • Moving out of the country.
  • Failure to make payments and having the car repossessed.
  • No longer requiring the vehicle and choosing to voluntarily return it.
  • Found a better deal when close to the end of your contract.
  • Simply changed your mind about the vehicle lease agreement.

Voluntary Termination, Repossession, Voluntary Surrender and Early Settlement

Each finance company has their own early termination criteria, but generally the rules are the same.

There are some different terms used when returning a leased car and each has a different meaning. Avoid confusion by understanding the terminology:

Voluntary termination is when you choose to return the vehicle for your own reasons. This leaves you with the most rights under the Consumer Credit Act and is usually the right term to use if you are choosing to return the vehicle for your own reasons.

Repossession is when you have failed to make payments (defaulted) and are legally obliged to return the vehicle. With repossession, usually someone will come and take your vehicle from you against your wishes.

Voluntary Surrender is very similar to repossession, and NOT the same as voluntary termination. Under voluntary surrender you will return the car to the leasing company but still be liable to make payments for the entire term of the contract.

Early Settlement is where you write a lease termination letter to the leasing company asking them for a settlement figure to end the contract. It is different to voluntary termination in that it becomes a personalised arrangement between yourself and the financial company, which doesn’t necessarily fit the structure of a voluntary termination.

It is best for you to undertake voluntary termination if you end up wishing to return the vehicle. This is followed by early settlement. Both voluntary surrender and repossession are usually situations against your will.

What to Do First

It is important to know the process of early termination. Make sure that you contact your leasing company if you are in any financial difficulty that is leading to your need to end your car lease early.

Communication is imperative in any situation of financial hardship and is especially important when you run the risk of having your vehicle repossessed.

Contacting the leasing company can help in the following ways:

  • They may be able to help you manage your payments better.
  • They may be able assist you in another way to avoid an early termination.
  • They will be able to be understanding and may help you avoid a poor credit record.

Avoiding communication is natural – no-one enjoys discussing difficult financial situations; however, it is never beneficial and is likely to result in stress and avoidance which may unnecessarily snowball into a vehicle repossession and damage your future credit.

Consumer Credit Act: Can I End My Car Finance Early?

Some people may want their finance agreements terminated early. Under UK law, you have a right to voluntarily terminate your regulated Hire Purchase (HP) or Personal Contract Purchase (PCP) under section 99 of the Consumer Credit Act.

Section 99 is there to look after those who are no longer able to afford their regular payments to a finance company.

Section 100 sets out the amount for which you are liable as being ‘one-half of the total price’.

Liability of 50% – Section 100 Explained

In your contract, there will be a section referring to your rights in the instance of termination. In that section will be a line which defines how much money you will need to have paid to reach the half-way mark. Under the Consumer Credit Act (Section 100), your liability ends if you have paid this amount prior to the termination of the agreement.

If, for example, your half-way mark is at £8,104.52 and you have paid £323.57 per month for 26 months, you will have already paid £8,437.87. As this is over the half-way mark amount, you have covered your liability and will not owe any extra amount.

However, if you have only been paying for 11 months, you will have only paid £3,559.27 and will still be liable for the remaining £4,545.25.

Personal Contract Hire (PCH) Differences

As PCH is a hire agreement, and not a purchase agreement (as both HP and PCP are), it is not covered in the same way by Sections 99 and 100 of the Consumer Credit Act. Consequently, it is also not limited by 50% liability in the same way.

It is important you read your PCH contract to understand how much you will be liable for in this instance.

Cancelling Payments

Once you have confirmed your early termination of the contract and the date of the termination, you are no longer required to make payments. You should cancel your direct debit at this time.

It might take the leasing company several weeks to process your cancellation, but you are not required to continue to make payments during this time.

If you are concerned over the time it is taking for your early termination to be acknowledged and dealt with by the leasing company, you should contact them to ask them for an update. Make sure you keep copies of all paperwork.

Returning the Leased Car

In all instances of early termination, it is in your very best interest to return the car in as perfect a condition as possible.

In addition to any other contractual fees, you are likely to be faced with another fee if the car is in any state beyond the ‘fair wear and tear’ guidelines.

This includes:

  • Damage to the bodywork
  • Damage to the interior
  • Mechanical damage
  • Missing parts
  • Missing accessories

While it is not obligatory to get the car professionally valeted, this can be an investment that is well worth doing.

A full valet is likely to reduce the penalties by more than its cost. Be sure to get a receipt to show that the work was done.

Photographs

For your own protection, take multiple photos of the car, both inside and out.

With some leasing companies, the time between you returning the vehicle and them having the time to properly inspect it can be days, even weeks, and it is possible that a scratch, or worse, occurs in the meantime. Ten minutes of taking pictures on your phone can prevent a dispute.

As well as the obvious (exterior and interior from all angles), remember to take photos of:

  • The engine
  • The boot
  • The spare wheel and tool areas
  • Wheels (especially alloy wheels)
  • The dashboard (including mileage count)
  • Any dents or scratches to show extent of damage
  • Any internal tears to seats
  • Lights working

Make sure all your photos are appropriately timestamped to further avoid arguments.

Paperwork

Make copies of all paperwork. You should return the car with any receipts or paperwork related to any work done on it in full, service history, the V5C log book and other documentation.

Keeping photocopies or clear photographs of all this paperwork can help avoid any problems in the future.

Mileage

Remember that you have been under a contract with a specific mileage limit. When you return the car, you will also be liable for any fees incurred due to exceeding the allotted mileage allowance.

As you are returning the vehicle early, this mileage will be calculated pro-rata. It is possible you are over without really thinking about it – especially if you drove the car more in the first year and had ‘calmed down’ your driving with a plan to reduce this before the end.

Do not be surprised to see a penalty for excess mileage on your final bill. If you are concerned about this, it may be worth discussing it with the leasing company when you are first speaking regarding returning the vehicle.

Collection

Many companies will collect the vehicle and will make arrangements with you to do so. You are not liable to pay for this collection and should not accept any charges in its regard.

Repossession and Voluntary Surrender

If you are in the uncomfortable position of having the car repossessed by the leasing company, you may be liable for a lot more than in the case of voluntary termination.

It is always preferable to find an alternative solution to defaulting on payments and facing repossession. Before you reach this predicament, please do contact your leasing company and discuss the situation with them.

If you feel you can no longer continue paying for your leasing car in any circumstance, you should enter into a voluntary termination.

In the case of repossession, you are likely to be charged for:

  • The entire remaining balance of the car lease.
  • The balance of all missed payments.
  • Interest from missed payments.
  • Lender’s administration fees from attempting to secure payment.
  • The lender’s court costs, bailiff costs and other associated costs for them to recover the car.
  • Cleaning costs for the car.
  • All additional penalties (described above) for any damage to the car.
  • Any additional costs regarding car resale.
  • Any loss between the car final resale value and the expected end-lease value.

Should you attempt to further avoid these costs, then the leasing company will pass on the debt to a third-party agency who will pursue legal means to recover the money.

Your Rights

Remember that you are not without rights, even when facing a repossession. Like a voluntary termination, the consumer credit act still protects you when you are forced to terminate an agreement due to an inability to pay and affords you the same limitations.

Talk openly and honestly to your leasing company to reach an agreement even at this late stage and you are likely to save yourself many hundreds of pounds, as well as the added stress of feeling you are in conflict with them.

Conclusion

If your circumstances have changed and you find yourself unable to make payments, contact your leasing company immediately. Discuss the situation and if you need to, move to voluntarily terminate your lease contract early – do not let it get out of hand and end up with a repossession.

At Complete Leasing we have a wide range of articles to help you understand the ins and out of car leasing and the different types of contract. For more information regarding Hire Purchase (HP), Personal Contract Purchase (PCP) or Personal Contract Hire (PCH), browse our 'Help and Guidance' section in the menu.

For more help on early termination, and information regarding your rights while in a leasing contract, give one of our representatives at Complete Leasing a call today - we are available and happy to help answer any questions you may have.

 

Useful articles:

How Does Car Leasing Work?

What Happens at the End of a Car Lease?

Should You Buy or Lease Your Next Car?

 

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