There are two types of car finance deals: hire purchase (HP) and personal contract purchase (PCP). Both deals work differently.
- The former enables you to pay down the money you borrowed to purchase a car in fixed instalments, and you would get the title of the car at the end of the contract.
- The latter involves smaller monthly payments made against the depreciation. At the end of the contract, you will have to either return it or purchase it by making the full balloon payment. You can even decide to renew the contract by swapping the old car with a new one.
Once you have signed up for a deal, it is not necessary that you adhere to the deal for the whole period. If you want to end your car finance agreement early, you can. However, there are certain conditions that you will have to meet.
How to end a car finance agreement early?
Here are some ways how you can do it:
Half rule
You have the right to end HP and PCP deals early if you have already settled half of the amount to be paid. If you have signed up for PCP, you will have to pay half the cost of the car’s value as well, not just the depreciation.
It is to be noted that the “half rule” does not suggest that you have to pay off the 50% of the cost to end the contract, but rather means that you have to pay off the balance after deducting the sum you have already paid so far. The half rule is applicable in Ireland, governed by the Consumer Credit Act 1995.
Understand this by the following example:
Car price | €12,000 |
Deposit | €2,000 |
Finance amount | €10,000 |
Interest charges | €3,000 |
Documentation fees | €70 |
Completion fees | €60 |
Total HP price | €13,130 |
- If you have already paid half of the total HP price, you simply have to return your car to the hire purchase company. You will not receive any money back if you have already paid more than 50% before handing over the car. Bear in mind that you need to pay repair charges if applicable.
- You are still eligible for this rule if you have not paid half price and your account is in arrears. You need to pay off the outstanding balance, along with accrued interest, and the balance up to half the HP price.
If you want to return the car under the “half rule” policy, do not sign the voluntary surrender form at the time of signing the deal, as you will lose your right to return the car under this rule. It means that you are returning the car voluntarily, but your debt will not disappear after handing over the car.
At the start of the agreement
If you are at the start of the agreement, it makes more sense to seek permission from your finance company to sell the car yourself. If your lender grants you permission, make sure that you have it in writing to avoid backout in the future.
You might not be able to fully pay off the balance from the sale of the car. Do not forget to ask your finance company what would happen in that case.
Voluntary termination/half settlement
It is not necessary that you adhere to the half rule to end the HP and PCP deal. If you think you should end it, you will have to return the car and pay off the full balance outright. You cannot get out of the agreement unless you have settled the whole debt.
This will also cost you early repayment charges. Your finance company will inform you how much money you would have to pay off at the time of voluntarily returning your car.
Withdrawing during the cooling-off period
When you are offered a car deal, you will have a 14-day cooling-off period. This is given to car borrowers to read all the terms and conditions and sign the contract. You are not legally bound by a contract unless you sign it.
This cooling-off period refers to a withdrawal period. If you have a second opinion about buying a car, you can call the agreement off. No penalties will be imposed on you. Make sure that you do it within a period of 14 days.
The final word
A car finance agreement can be ended early in Ireland. Whether you consider car finance for bad credit in Ireland or car finance with good credit, you can use either voluntary termination, which is called early settlement, or the half rule. If you happen to change your mind during the cooling-off period, you can cancel it without incurring any liability.
At the time of terminating the contract, make sure that you have read all terms and conditions carefully and you are confident that the chosen option will work to your advantage.
