The secret way to escape your PCP agreement

VT is a useful escape route but can be an expensive one. For example, my neighbour has a Volkswagen Golf 1.5 Match Edition Mk7 on a four-year PCP. She’s one year into the deal, but to VT it would cost her £6500 – the equivalent of a further 24 monthly repayments. It’s a lot of money, but it means that were she approaching the end of the agreement’s third year, she could VT the car with little or nothing to pay. Whenever it’s done, a VT is cheaper than taking the early settlement route (in my neighbour’s case, it would cost her £17,900).

Adrian Dally, head of motor finance at the Finance and Leasing Association, expects VTs to increase after 31 October. “Things have turned out significantly better than we predicted at the start of the pandemic, thanks to the fact that up to 700,000 customers have taken advantage of payment deferrals,” he says. “However, we’d be naïve to think everyone will resume their repayments where they left off. We expect some to voluntarily terminate their agreements.”

Sara Williams, a debt advisor who runs debtcamel.co.uk, a debt news and advice website, agrees. She says that for many people VT will be their best option: “It looks likely that no new payment breaks will be set up after October. Redundancies are rising, too. For anyone affected, the choice may be between terminating their PCP or paying the rent or mortgage. For many people, it may be the sensible choice.”

The way voluntary termination works is set out in sections 99 and 100 of the Consumer Credit Act 1974. It’s a good protection for consumers that doesn’t affect the borrower’s credit record – but only if they know of its existence. Unfortunately, some finance agreements neglect to mention it. For example, the finance paperwork relating to my neighbour’s Golf makes no mention of her right to VT her agreement. Presumably, omissions such as this are why the FCA reminds finance companies they “should act in a way that is clear, fair and not misleading”.

Ian Ferguson, a former dealer group boss who two years ago crossed the forecourt to become a consumer champion helping people to reject their car through his rejectmycar.com website, knows how opaque, misleading and downright unfair dealers and finance companies can be when people try to VT their car.

He says the problem starts with the culture of car dealers in which people are promoted purely on their ability to sell cars. It continues with a finance industry that rewards them to obstruct customers – and penalise them if they foul up.

“Some manufacturer-owned finance companies, as well as major banks, pay dealers a bonus of around £1000 on each finance agreement that can be clawed back if it’s terminated,” he says. “This penalty exists for the length of the agreement. It’s therefore in the interests of dealers to at best discourage customers from voluntarily terminating their cars and at worst tell them it can’t be done.”

Another tactic finance companies use to discourage VTs is to threaten customers with excessive bills for wear and tear. Ferguson claims that when his son, who he says is fastidious about looking after his cars, VT’d his Citroën, the finance company told him he owed £750 for damage. Ferguson asked for photographic evidence and says he was sent what turned out to be images of another car. He argued the company down to £57, which it insisted was for a new tyre, even though the car had been serviced and checked by a main dealer the week before it was returned and its tyres judged to be well within limits. “I took the finance company to the FCA and won £250 compensation,” says Ferguson.

Given his experience, it would appear that there is yet one more thing to be wary of during these difficult times.

How to VT your car

If you’re struggling to meet the repayments, speak to the finance company to discuss how, following the FCA’s guidance, they can help. If they can’t and you consider VT to be your best option:

â–  Write to the finance company telling them that you wish to voluntarily terminate your agreement under section 99 of the Consumer Credit Act 1974. Send the letter by recorded delivery. Don’t allow the finance company to misinterpret your request and assume you wish to surrender the car, in which case you will have to pay the full settlement figure.