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Exiting your PCP deal early: What you need to know

March 18, 2024

Exiting your PCP deal early: What you need to know

With the rising popularity of Personal Contract Purchase (PCP) as a car financing option, the inevitable question comes up of whether you can end a PCP deal early, and what the implications are if you can. We’re here to tell you everything you need to know about exiting PCP early, including any penalties you might have to consider, and a step-by-step guide to terminating your contract.

Understanding PCP: A brief overview

Personal Contract Purchase (PCP) is a car financing method that’s been growing steadily in popularity. It involves the payment of an initial deposit upfront, followed by a series of fixed monthly payments for the remainder of the contract agreement. At the end of the contract, you have several options available to you — this flexibility is one of the main advantages of using PCP. If you want to own your car, you can choose to pay a final balloon payment once your contract is finished. Otherwise, you can trade in for a new vehicle and renew the contract, or simply return the vehicle and allow the contract to end.

As with any car financing agreement, PCP also has a series of rules you’ll have to follow, For example, PCP agreements implement an annual mileage cap that you’ll be penalised if you exceed. There are also financial penalties for any excessive wear and tear suffered by the car.

Overall, it’s an extremely flexible method of financing a car that often has lower associated costs than many other methods. This combination of affordability and flexibility makes it extremely appealing to a high number of people.

The possibility of exiting PCP early: What you should know

The first thing to note is that it is entirely possible to exit your PCP agreement early. However, some rules need to be followed.

Anybody can end their contract once they’ve already paid 50% of the total payable amount. This is known as voluntary termination. It can be a great option for those who are struggling to keep up with their monthly payments but have already contributed a significant amount to the contract. You won't receive any refund, and you’ll have to return the car in the condition agreed upon in the initial contract.

For anyone who hasn’t paid 50% of the total yet, you can still exit through something known as early settlement. This involves paying the outstanding balance, the final balloon payment, and any admin fees to settle your contract. You’ll retain ownership of the car and will save yourself from paying any further interest on the finance.

Regardless of what situation you’re in, it’s extremely important to review the terms and conditions of your contract. Different leasing companies may have different stipulations around fees or penalties and you need to be aware of these before trying to exit.

How to exit your PCP contract early

To exit your contract early there are a specific set of steps you’ll need to follow:

1. Review your contract

Carefully review any terms and conditions so that you fully understand all of your rights under the agreement.

2. Contact the finance company

Inform your finance provider that you intend to exit early, and request any information they might have on options that are available to you and what you need to do to formally start the process.

3. Decide your termination option

Choose whether you want to utilise voluntary termination, early settlement, or even if the company would be willing to part-exchange your contract for a newer deal.

4. Assess the vehicle condition

Your vehicle will be inspected when you return per the terms outlined in your contract. In some instances, making some repairs yourself may be more cost-effective than suffering penalties implied by the leasing company.

5. Review the financial implications

Take stock of what penalties you may incur for terminating early, what your remaining balance is, and have a record of everything you’ve already paid.

6. Follow the procedures outlined by the company

If you're given a set of instructions, make sure you follow them as closely as possible to make sure the process goes smoothly. This will likely include the return of the vehicle in the case of a voluntary termination.

7. Get confirmation

Ensure you get written confirmation of your early exit from the contract so that you have proof you are no longer liable for the finance.

What happens at the end of a PCP agreement?

One of the main advantages of a PCP agreement is the flexibility afforded to you at the end of the contract. There are three options which you can typically choose from:

Returning the vehicle

This is as simple as it sounds — once the contract is over you simply hand your car back. The leasing company will then conduct a series of inspections to determine whether or not there is any excessive damage to the vehicle, covering the interior, exterior, and all major mechanical components. Excessive damage beyond that of typical wear and tear will likely result in extra charges.

Mileage will also be checked against your annual allowance, with further charges being incurred if you’ve exceeded this. Following these inspections, providing there are no extra charges to be settled, your contract will then be complete.

Making the balloon payment

If you decide you’d like to own your car outright, you can choose to make a final balloon payment. This is a significant lump sum that represents the residual retail value of the vehicle. The vehicle will likely be inspected before being signed over to you, and extra charges may be added if the leasing company needs to make repairs outside of general maintenance. Following the balloon payment, the vehicle is signed into your name and is yours to do as you wish.

Part-exchanging for a new vehicle

The final option sees you exchange your vehicle for a newer model in a part exchange. You’ll select your new model, have your current vehicle inspected and evaluated, and then it will be used as a deposit on the new car. Extra costs can come about as part of the inspections, with mileage and wear and tear again likely to add extra costs if issues are found.

Concluding thoughts on PCP contracts and early exit strategies

Exiting a PCP contract may not be the simplest process, but it is possible and can be achieved by anyone provided the right steps are followed. Make sure you’re fully informed on the terms of your contract and are prepared for the general implications of ending your contract early — particularly how it may affect you financially in the short term.

If you want to learn more about your general car financing options, Drive Fuze has a wide variety of information and advice to help you no matter what your question is.

Remember, while it may seem daunting, ending a PCP agreement can be a straightforward process once you're armed with the right information.