What if I can no longer afford my car lease?

August 25, 2017

The car finance market is currently under investigation by regulators, as fears grow that it could become the next ‘debt bubble.’ The problem is that personal contract purchase (PCP) and hire purchase (HP) car financing agreements require little in the way of an initial deposit, and can be easily obtained by consumers posing a high risk of default.

So if you have a car lease agreement that has become unaffordable, how can you cancel your obligations under the lease? Section 99 of the Consumer Credit Act, 1974, states that, under certain conditions you have a right to voluntarily end your regulated car lease, whether it’s a PCP or an HP agreement.

What are your car lease cancellation rights?

The PCP or HP lease agreement should set out your rights in relation to early termination if you can no longer afford your repayments.  Cancelling a car lease in this way helps to prevent further decline into debt, removing what is often a significant monthly outgoing.

If you’ve already defaulted on your repayments, it’s unlikely that you’ll be able to voluntarily end your car lease, however, and the finance company is under no obligation to allow this.

Ending your car lease agreement

There are two aspects to consider when terminating a car lease early:

  • Repayment of 50% of the Total Amount Payable (the calculation for this varies according to the type of lease)
  • Ensuring there is no damage to the vehicle apart from the expected wear and tear, and that you haven’t exceeded the agreed mileage rate

The Total Amount Payable should be clearly stated on your contract. It’s the amount you borrowed, plus interest and charges. If you’ve taken out a PCP, an additional figure is included in the Total Amount Payable – the Guaranteed Minimum Future Value (GMFV).

What is the process for cancelling a car lease?

If you decide to cancel your car lease rather than negotiate for lower repayments, the first thing to do is contact the lender. You may prefer to phone initially to let them know your intention, following this up with a notice of termination letter as confirmation.

Some lenders require you to sign their own early termination document. It’s vital to check what you’re signing for, however, as you could incur unexpected additional charges.  Once you’re satisfied that all is in order, the lender will inspect the car and take it away.

Other considerations when ending a car lease early

  • Your credit score

If you’re able to cancel your lease agreement early, you can give the car back to the finance company and it won’t affect your credit score. This is a significant issue if you need to borrow again in the future, but it’s unlikely that you’ll be able to borrow from this particular lender as they will have lost money on the deal. The fact that you’ve used voluntary termination is noted in your credit file, but the reasons why the lease was ended are not.

  • Excess miles

When you take out car finance, certain types of lease place a limit on the number of miles you can travel in the car. If you’ve exceeded this when you voluntarily cancel your lease, the extra miles will be charged for. If the finance company doesn’t charge for these additional miles, they lose money, as the car’s value is directly connected to its mileage.

  • Damage clause

You may be charged for ‘damage’ to the vehicle if the lender believes that it’s more than normal wear and tear, but it can be difficult to establish exactly what ‘normal wear and tear’ is. This can increase the overall cost for you to cancel your lease agreement early.

If you can no longer afford your car lease, and want more information on voluntary termination, Scotland Debt Solutions can help. We’ll check the type of lease you hold and make sure communications with the lender are carried out correctly to cancel the lease. Call our experts for a free same-day meeting, and receive the professional advice you need.

John Baird

Insolvency Adviser

Tel: 0800 063 9250

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