Ending Finance Agreement

Ending a finance agreement can feel like navigating a maze, but understanding the process and your options is crucial. Here’s a breakdown of common scenarios and key considerations:

Early Termination

Most finance agreements, like those for car loans or personal loans, allow for early termination. However, it almost always involves penalties. The lender will calculate the amount you owe, typically including the outstanding principal balance, accrued interest, and a termination fee. This fee covers their lost profit from the agreement running its full term.

How to proceed:

1. Contact your lender: Request a settlement figure that outlines the total amount needed to close the account.
2. Assess the cost: Carefully review the settlement figure and compare it to the remaining payments under your original agreement. Determine if early termination is financially advantageous.
3. Explore alternatives: Before committing, consider options like refinancing with a different lender (potentially at a lower interest rate) or selling the asset (e.g., a car) to pay off the loan.

Voluntary Termination (Hire Purchase Agreements)

If you’ve entered a hire purchase (HP) agreement, you have the right to voluntarily terminate under Section 99 of the Consumer Credit Act 1974. This allows you to end the agreement once you’ve paid at least 50% of the total amount payable, including any deposit and interest. You’ll then return the goods (e.g., the car) to the finance company.

Important considerations:

• You are responsible for the difference between the amount you’ve already paid and the 50% threshold.
• The goods must be in reasonable condition, considering fair wear and tear. You may be charged for any damage beyond normal use.
• Voluntary termination can affect your credit score, although less severely than defaulting on the agreement.

Involuntary Termination (Repossession)

If you fall behind on payments, the finance company may repossess the goods. This is considered an involuntary termination and can severely damage your credit score. You’ll also remain liable for any shortfall between the sale price of the repossessed goods and the outstanding balance on the agreement, plus repossession costs.

Avoiding repossession:

• Communicate with your lender immediately if you’re struggling to make payments. They may be willing to offer temporary payment arrangements.
• Seek advice from a debt counselling agency for guidance on managing your finances and exploring debt solutions.

General Tips

Regardless of the termination method, always obtain written confirmation from the lender that the account is closed and the agreement is terminated. Keep this documentation for your records. Thoroughly review the terms and conditions of your finance agreement before entering it to understand your rights and obligations regarding termination. Seek independent financial advice if you’re unsure about the best course of action.