Can I Cancel Car Finance Early?
Once you enter into a car finance agreement in the UK you have 14 days to cancel the finance contract but you still need to pay for the car. For example you have just taken delivery of your car but decide after a week you don’t want the finance anymore. You can then ring the finance company and pay off the finance in full with no penalty.
This has nothing to do with the dealership that sold you the car but is between yourself and the finance company. The dealership has already been paid by the lender. However, things are a bit different after the 14 days as you are now tied into a contract with the finance company.
If you wish to cancel the contract at this stage it will involve some cost but usually not a great amount. Most finance companies will charge you interest up to the point you have had the loan but nothing else. So as long as you have the funds in place to clear the debt you are good to go.
But what happens if you don’t have the money?
This is where the the “Halves and Thirds” rule comes into play which many consumers are completely unaware of. In car finance it actually refers to two separate protections offered to consumers under the Consumer Credit Act (CCA) in the UK. It’s important to understand the difference between them:
The Halves Rule:
- This allows you to voluntarily terminate your car finance agreement once you’ve paid at least half of the total amount payable (TAP).
- The TAP includes everything – your deposit, the amount borrowed, interest, fees, and charges.
- Once you’ve reached the halfway point and are caught up on any missed payments, you can return the car to the finance company (provided it’s in reasonable condition) and walk away without owing anything further.
- It’s important to note that this is a one-time option. You can’t take advantage of it again if you finance another car from the same company.
The Thirds Rule:
- This rule kicks in when you’ve paid more than a third of the TAP.
- It doesn’t give you the right to voluntarily return the car, but it offers significant protection against repossession.
- If you fall behind on repayments and have paid more than a third of the TAP, the finance company cannot simply repossess your car without a court order. They must go through a legal process first, giving you time to rectify the situation.
- This rule provides peace of mind knowing that, even if you face temporary financial difficulties, your car isn’t immediately at risk of being taken away.
Things to remember:
- These rules only apply to certain types of car finance agreements – regulated hire purchase (HP) and regulated conditional sale (CS). They don’t apply to leases or personal loans used to buy a car but do cover Hire Purchase and Personal Contract Plans (PCP).
- Always check your specific finance agreement to see if it mentions the halves and thirds rules and if it doesn’t then contact the lender directly to check with them.
- Although it doesn’t blacklist you there is still a note on your credit file that you have exercised your rights to return the vehicle. How another lender may view this is entirely down to them but the actual act of following this rule doesn’t blacklist you.
Most importantly if you do have a car on finance and are struggling to make the payments on it then please seek advice and don’t just leave it.