Will voluntary termination of car finance affect my credit score?

Dear James,

I’ve had a car on finance, but it’s not really suitable for my daily use. Will voluntarily terminating my car finance agreement affect my credit score and could it prevent me from getting another car on finance?

Nicola, Port Glasgow

Dear Nicola,

Ending a car finance agreement early using ‘voluntary termination’ is your legal right, as long as you’ve paid at least half of the total amount due and you hand the car back in satisfactory condition. You should then be left owing nothing and the lender should update your credit report to reflect this. The lender may also add a voluntary termination marker to the entry on your credit report which explains to other lenders why the finance was settled early. Your credit score should not be affected, as long as you have paid all of your monthly payments on time up to the point you hand the keys back, so you should not see any late payments registered. Lastly, unless any lender you approach has a policy of not lending to people who’ve opted for a voluntary termination in the past – and I’ve not seen any evidence of this – then it should not affect your chances of securing credit in the future. (January 2016)

You can find archived Ask James questions arranged under subject headings such as ‘applying for credit’, ‘credit and debt’ and ‘fraud’ at the main Ask James page.

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