Q. I purchased a car on finance about a year ago. I have recently changed my job and I am using the car a lot less and am now looking to trade down. My car has come down in value quite a bit and I am not sure if I can just hand it back? What are my options to step away from the finance agreement, as I am looking to buy privately? Any help would be appreciated.
Dear Reader,
The steps you can take are dependent on what type of car finance you have.
You may have leased the car, i.e. you simply rent the car for the duration of the lease, which is usually between two and five years. Whether or not you have an option to terminate the lease is dependent on the particular agreement.
If your agreement does allow you terminate the lease, a termination fee would generally apply. This fee can sometimes be large. It may be economical to simply let the lease run its course. When the lease is expired, generally the car reverts to the garage.
Hire purchase is a traditional way of financing a new or used vehicle. There is a higher upfront payment than a lease, as well as usually higher monthly payments. If you want to get out of the agreement, you could pay off the balance due on the car and own it outright. You can also hand the car back to the garage but will have to pay up to one half of the value of the hire purchase, together with any costs of repair to bring the car back to ‘reasonable’ condition.
If the car is in good condition and you have more than half the payments made, you can simply hand the car back.
A personal contract purchase (PCP) is a mix between hire purchase and a lease. You will pay a deposit, usually relatively high, along with monthly payments. At the end of the term, you will be able to pay a large balloon payment to buy the car, hand the car back, or simply start with a new PCP.
Like hire purchase, if you have paid half the car price, you can simply hand the car back. There may also be an option to buy out the vehicle.
It is also possible that you simply took out a loan through the garage, in which case you would own the vehicle outright but be liable to pay back the loan. It may be the case that you are in ‘negative equity’ if the value of the car exceeds the amount outstanding on the Loan.
Do speak to your financial advisor or solicitor before taking any steps.
