Personal Contract Purchases – How the RAF FF can help
We at the Families Federation are seeing more and more cases coming forward in reference to Personal Contract Purchase (PCP) car finance agreements. Evidence Team member, Ken Wood has collated some useful information to help you make informed choices for when you are planning the best route to funding a car purchase. Especially when mobile operations and postings are part of a serviceman or woman’s job requirements.
PCP is a bit like hire purchase but there are some important differences. Customers pay a deposit on the car they want and make monthly repayments until the end of the term. When the term ends, customers have a choice: they can make a lump sum payment – known as a balloon payment – in order to purchase the vehicle outright. Alternatively, they can use any equity they have in the deal if the car has maintained more of its value than expected – to put down as a deposit on a new vehicle, via a new PCP deal. Or they can just hand the car back and walk away without making any further payments.
UK law provides you with the right to voluntarily terminate a PCP agreement and information can be found via the Consumer Credit Act 1974: legislation.gov.uk/ukpga/1974/39/section/99
The law is there to protect consumers who can no longer afford their monthly payments. Equally, it provides protection to finance companies to ensure borrowers can’t simply walk away from their obligations at any time. It does this by setting the minimum repayment amount at 50% of the total amount payable.
Voluntary termination of a PCP is the legal right of a borrower (you) to cancel your finance agreement early and walk away in certain circumstances. Car finance companies don’t like it, plus it is usually explained poorly (or not at all) by dealers. Often people’s circumstances can change over the course of a car finance agreement that leave you unable to make your monthly finance payments. You might lose your job, your personal circumstances can change in different ways, or other unforeseen factors might make it difficult to keep up with your monthly car payments or in the case of service personnel you may be posted overseas.
Depending on the circumstances, you may be eligible for voluntary termination of your car finance agreement with nothing more to pay and no penalties.
How voluntary termination works
You can end your agreement and return your car to the finance company as long as:
- You repay 50% of the total amount payable (not the total amount borrowed, as you need to include interest and fees, and not half of your scheduled monthly payments)
- There are no damages if you have failed to take reasonable care of the goods (over and above normal wear and tear)
- Assuming you have complied with both of the above, you’ll have nothing further to pay.
Voluntary Termination, not Voluntary Surrender
Be clear in your language, point out that you are exercising your legal right to Voluntarily Terminate your car finance agreement as set out in your contract and the Consumer Credit Act 1974.
This is important so that the finance company can’t accidentally or deliberately misconstrue your termination for Voluntary Surrender, which is a very different thing.
Under a voluntary surrender, you give back the car but still owe whatever is left to pay. The finance company will sell the car at auction (adding on extra costs for collecting and disposing of the vehicle) and then request whatever you still owe.
This news story is included in the Winter edition of Envoy magazine – the free magazine for RAF personnel and your families too. You can sign up online to have your own copy sent to your home (quarterly).