Termination fee


A termination fee is the amount you must pay if you want to cancel a finance agreement early.


What is the termination fee?

If, during the term of your car finance agreement, you want to end the process early, you will have to pay a termination fee. This is an amount set out in the car finance agreement you sign at the start of the deal. It can vary in amount, and is designed to help the car finance provider recoup some of their costs from a cancelled agreement. It is more expensive (as well as less profitable) for a finance provider to cancel a deal early, so they have a termination fee in place.


When would I have to pay a termination fee?

You only have to pay a termination fee if you want to end the car finance package early. This may be because you can no longer afford the monthly payments, you no longer need the car you are financing, or you want to start a new finance deal on a better car and so cancelling is the quickest method.

To do so, you should contact the finance provider and explain to them the situation. They will ask you why you want to cancel, and discuss potential options to make you reconsider. But you have a legal right to cancel your package early, so if that’s what you want to do then they will be able to start the process.

You will have to pay the termination fee, and then return the car you are financing. Whether you keep any equity you put in to the deal depends on the type of car finance package you have opted for.


Are there any requirements before I can cancel a finance agreement?

You will need to have paid off 50% of the total cost of the finance agreement before you can cancel. If you have not reached that mark yet, then you will also have to pay the difference between what you have paid and 50% of the total costs. For example, if you were borrowing £30,000 in total across the agreement, but had only paid off £10,000, you would need to pay off £5,000 to reach the 50% mark. The termination fee is separate to this and would not count towards the 50% mark.


Are there alternatives to paying a termination fee?

If you are struggling to make your repayments, you can try and request a payment holiday from the finance company. This can be anything from 1-3 months, and will give you some time to sort your finances out before you have to start making repayments again.

You could also try refinancing the finance agreement, reducing the costs of the finance package by spreading it out over a longer period of time.

In any event, if you are struggling to pay your car finance package, you should contact the finance provider and see how they can help. There are also lots of debt advice charities out there that can help provide you with free impartial advice, including about finance agreements you may have outstanding.

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