The right
Section 99 of the Consumer Credit Act 1974 lets you end a regulated hire purchase or conditional sale agreement at any time before the final payment falls due, by telling the lender. PCP deals are usually hire purchase agreements, so this applies to them too. It doesn’t apply to leasing (personal contract hire) or to a personal loan used to buy a car, because then the car is already yours.
What ‘half’ means
Section 100 says that when you end the agreement, you must bring what you’ve paid up to half of the total price. Section 189 defines the total price as everything you pay under the agreement, so it includes:
- your deposit (and part-exchange, and usually any dealer contribution)
- all the monthly payments
- the final payment and any fees
Once you’ve paid half, you can hand the car back with nothing more to pay. Before then, you can still hand it back by paying the difference. On PCP, the large final payment makes the total bigger, so you reach half later than on HP.
An example
A £25,000 car on PCP: £3,000 deposit, 48 payments of £381.67 at 9.9% APR, and a £10,000 final payment. The total amount payable is £31,320.16, so half is £15,660.08.
- After 18 payments you’ve paid £9,870.06, so you’d need £5,790.02 more to hand it back.
- After 24 payments you’d need £3,500.00 more.
- You reach half at month 34, and can then hand it back with nothing more to pay.
On hire purchase with the same figures, you’d reach half at month 22.
What you may still owe
- Arrears: any missed payments must be paid as well as reaching half.
- Damage: section 100 says you must have taken reasonable care of the car. The lender can charge for damage beyond fair wear and tear. Industry fair wear and tear guides set out what’s normal for the car’s age.
- Excess mileage: some lenders charge for miles over the agreed limit when you end a PCP this way. Whether they can is often disputed. If you’re charged, ask the lender to explain the basis, and you can complain to the Financial Ombudsman Service if you disagree.
How to do it
- Ask the lender for the amount needed to reach half, and check it against your agreement.
- Tell the lender in writing that you’re ending the agreement under section 99 of the Consumer Credit Act 1974.
- Pay any shortfall to half and any arrears, and arrange for the car to be collected. Keep photos of its condition and the mileage.
Voluntary termination or settling early
If you want to keep the car, settle early instead: pay the settlement figure and the car is yours. At month 24 in the example, settling would cost about £16,649.47. Handing the car back would cost £3,500.00 more, but you’d no longer have the car. If the car is worth more than the settlement figure, settling and selling it may leave you better off. This is information, not financial advice.