9. Voluntary termination of hire purchase and personal contract purchase agreements
Hire purchase (HP) is a form of borrowing where the client does not own the goods. They are considered hired to the consumer until the final payment is made. Personal contract purchase (PCP) agreements are another common option for car finance, they are similar to HP but generally have lower monthly payments for the client. To take the title of the car, the client must make a ‘balloon payment’ at the end of the contract.
HP and PCP allow the client to voluntarily terminate the agreement early without any further payments being made when they have paid 50 per cent of the total cost of the credit (including any interest and charges).1s99 CCA 1974 They can only do this if they are not in default. For HP agreements, this is generally halfway through the contract time – eg, on a 36-month contract 50 per cent is generally paid when month 18 has been cleared.
For PCP, it is slightly different because the total cost includes the balloon payment so it may take longer to get to the 50 per cent mark.
In both instances, the client can terminate the agreement and hand the car back without having to pay any more to the contract. The amount to be paid to voluntarily terminate will be outlined clearly in the consumer credit contract the client signed when they took on the credit. Debt advisers are encouraged to check the client’s contact to ensure it is correct.