Can't pay car finance? Your options, from voluntary termination to repossession rules

Your rights under hire purchase and PCP

Most hire purchase and many PCP agreements are regulated by the Consumer Credit Act 1974, which gives you two important protections.

Voluntary termination: the 50% rule

You can end the agreement and return the car once you’ve paid half of the total amount payable (including interest and fees). If you’ve paid less than half, you can still terminate but must pay up to the halfway point. You may also be charged if the car has excess damage. Voluntary termination is usually better than voluntary surrender, where the car is sold and you may still owe a shortfall.

Repossession protection: the one-third rule

Once you’ve paid at least a third of the total amount payable, the car becomes “protected goods”, and the lender usually needs a court order to take it back.

Logbook loans

A logbook loan is secured on a car you already own, using a bill of sale. If you fall behind, the lender can repossess the car without a court order. Get advice quickly if you’re behind on a logbook loan.

Practical options

1. Contact the lender and explain your situation. Ask about reduced payments or a payment holiday. Lenders must treat you fairly under FCA rules.
2. Check your agreement to see how much you’ve paid towards the total and whether voluntary termination is available.
3. Consider whether you need the car. If not, voluntary termination may be the cleanest way out.
4. Prioritise essential bills – rent, council tax and energy usually come before car finance unless you need the car for work. Read priority debts.

Car finance and bailiffs

A car on hire purchase or PCP belongs to the finance company, so bailiffs can’t take it for your other debts. Recovery agents acting for the lender aren’t bailiffs, and they generally need a court order once a third has been paid. Read can bailiffs take my car?

Car finance in debt solutions

In a DRO, IVA or bankruptcy, finance cars are treated differently from cars you own outright. You can often keep paying if the car is needed and affordable. Read can I keep my car in an IVA, DRO or bankruptcy?

Frequently asked questions

Will voluntary termination affect my credit rating?

It’s usually recorded as the agreement ending early. It’s generally much better for your credit file than missed payments, defaults or repossession.

Can the lender take my car without warning?

Under a regulated hire purchase agreement, once you’ve paid a third, the lender needs a court order. Before that, it must still follow FCA rules and send notices first.

Can I hand back a PCP car early?

Usually, yes, under voluntary termination if it’s a regulated hire purchase-based PCP. Check your agreement.

Sources

• Consumer Credit Act 1974, sections 90 and 99 to 100
• FCA Handbook, CONC 7: Arrears, default and recovery
• GOV.UK, Options for paying off your debts