Can you just give your car back if you cannot afford the finance payments

Car finance payments have become one of the biggest monthly costs for many households. When budgets are squeezed, it is very common to wonder whether you can simply hand the car back and make the problem disappear.

Consumer advice bodies and debt charities agree on one key point. For most hire purchase and personal contract purchase agreements regulated by the Consumer Credit Act, you do have a legal right to end the agreement early and return the car, but only on specific terms.

This article answers the main questions people have about that right, how much you still have to pay, and how current investigations into mis sold car finance and fake compensation calls fit into the picture.

1. The basic idea of voluntary termination

Under sections 99 and 100 of the Consumer Credit Act 1974, many hire purchase and conditional sale agreements include a statutory right called voluntary termination.

In plain language, this means:

• you can end the agreement early by giving notice and returning the car, and
• as long as certain conditions are met, your total liability under the agreement is capped.

Money guidance services explain the key rule like this: if you use voluntary termination, you are responsible for paying up to half of the total amount payable under the agreement, plus any arrears and reasonable charges for excess damage or mileage.

If you have already paid at least half of the total amount, you may not have to pay any more, apart from those arrears and damage costs. If you have paid less than half, you can usually terminate by paying the difference.

The finance company cannot refuse a valid voluntary termination just because they would prefer you to stay in the agreement. This right comes from statute and cannot be removed by contract terms.

2. Voluntary termination versus voluntary surrender

People often mix up two very different things:

• Voluntary termination – you exercise your legal right under the Act, return the car and only have to pay up to 50 percent of the total amount payable (plus arrears and damage).
• Voluntary surrender – you give the car back, but the agreement is not terminated under the 50 percent rule. The lender sells the car at auction, and you are still liable for whatever is left of the balance after they take off the sale proceeds and charges.

Debt advice guides warn that voluntary surrender can leave people with large residual balances, especially when used cars sell for less than expected.

If you are thinking of handing the car back, it is crucial to be clear which of these you are doing. If you intend to use voluntary termination, say so clearly in writing and refer to section 99 of the Consumer Credit Act.

3. How the 50 percent figure is calculated in reality

The 50 percent cap does not refer to half of the cash price of the car. It is half of the total amount payable under the agreement. This normally includes:

• the deposit
• all scheduled monthly instalments
• interest over the full term
• some fees that form part of the agreement.

National Debtline, specialist car finance guides and advice sites all emphasise that lenders must base their calculation on the total figure set out in the agreement, not a number they choose later.

In practice this can mean:

• if you agreed a total amount payable of 20,000, the voluntary termination threshold is usually 10,000
• if you have already paid 8,000, you might need to pay a further 2,000 plus any arrears and damage charges to terminate
• if you have already paid 11,000, you may not need to pay more apart from arrears and damage.

The Financial Ombudsman Service has upheld complaints where lenders miscalculated voluntary termination figures or misled customers about what they would owe, ordering them to correct balances and pay compensation.

4. What about damage and mileage charges

Voluntary termination does not give you a free pass to return a heavily damaged car. Finance companies are allowed to charge for damage beyond what is considered fair wear and tear, and for serious excess mileage on some agreements.

Guidance from advice sites and Ombudsman case studies indicates that:

• the car should be in reasonable condition for its age and mileage
• minor scratches and small stone chips are usually accepted as normal
• finance companies should use industry fair wear and tear standards, not treat every small mark as chargeable damage
• if there is a dispute about damage, you can ask for inspection reports and photographs and complain if you feel charges are unfair.

If you disagree with damage costs after voluntary termination, you can challenge them through the lender complaint process and then the Financial Ombudsman if needed.

5. How voluntary termination appears on your credit file

One common worry is that using voluntary termination will ruin your credit record. MoneyHelper explains that where voluntary termination is done correctly, the agreement will usually show on your credit file as settled or terminated, with a note that it ended early, but without a negative marker by itself.

The guidance notes that:

• a correctly carried out voluntary termination is normally better for your credit record than missing payments and falling into arrears
• there is no special black mark for using your statutory right to end the agreement
• serious problems mainly arise where people stop paying without engaging with the lender, leading to arrears, defaults and court action.

If your credit file shows incorrect arrears markers or default dates around a voluntary termination, you can dispute this with the lender and the credit reference agencies, and escalate to the Ombudsman if it is not resolved.

6. How the current car finance scandal and compensation scheme fit in

Motor finance has been in the headlines because of long running concerns about mis sold commission arrangements and unfair interest rates.

Regulatory papers and news coverage show that:

• for many years, some dealers used discretionary commission models, where they could increase the interest rate to earn higher commission
• the financial regulator banned these models in 2021, estimating that this would save consumers around 165 million per year
• court decisions and regulatory investigations have since led to proposals for a large scale redress scheme for customers who overpaid because of unfair commission arrangements on agreements made between 2007 and 2024
• estimates suggest compensation could run into many billions of pounds, with average payouts in the hundreds of pounds per affected agreement.

At the same time, the regulator has warned about scam calls where fraudsters pretend to be from finance companies or claims firms and ask for personal or bank details to process fake compensation.

If you think you might be affected by mis sold car finance:

• use information from the official regulator site or your lender, not cold calls
• complain directly to your lender or broker first
• if you are unhappy with their response after they have had up to eight weeks to reply, you can take your complaint to the Financial Ombudsman Service at no cost.

Any future compensation scheme would sit alongside, not replace, your existing voluntary termination rights.

7. Practical steps if you cannot afford your car payments

MoneyHelper, Citizens Advice and debt charities all suggest similar steps if you are struggling with car finance.

1. Do not ignore the problem
   Contact the finance company early, explain your situation and ask what options exist. They may be able to reschedule payments, offer a short term reduction or discuss voluntary termination.

2. Check how much you have paid so far
   Use your agreement to see the total amount payable and how much you have already paid. This helps you understand whether you are near the 50 percent threshold.

3. Get written figures for any voluntary termination
   Ask the lender to give you a clear written breakdown of what you would owe if you terminate now, including any arrears and estimated damage charges.

4. Avoid informal hand backs or surrender unless you understand the consequences
   If a firm suggests simply returning the car without clearly explaining that this is voluntary termination under the Act, ask them to confirm in writing which process they are using and what your remaining liability will be.

5. Protect your priority bills
   Do not agree to unaffordable payments that would leave you short for rent or mortgage, council tax, food or energy. These are priority commitments.

6. Get free, independent debt advice if you feel overwhelmed
   National debt advice charities can help you look at car finance alongside other debts, work out what is affordable and support you in negotiations.

Key points to remember

• Many regulated hire purchase and car finance agreements give you a legal right to voluntary termination, allowing you to end the agreement early and cap what you owe, as long as you meet the conditions.
• Voluntary termination is not the same as voluntary surrender. Surrender can leave you with a large leftover balance after the car is sold, while termination limits your total liability to around half the total amount payable, plus arrears and fair damage.
• Using voluntary termination correctly is usually less damaging to your credit record than falling into arrears or default, although the agreement will normally show as ended early.
• Current investigations into car finance mis selling and proposed compensation schemes are about past unfair commission and interest practices; they do not change your underlying right to terminate if you cannot afford ongoing payments.
• If you are thinking about giving the car back, get clear written figures, understand whether you are using voluntary termination or surrender, and seek advice if you are unsure. Acting early can stop a car that was supposed to be helpful from becoming a long term debt problem.