Does Voluntary Termination Affect Credit Score

Does Voluntary Termination Affect My Credit Score

If you’ve taken out a car finance agreement, particularly a Personal Contract Purchase (PCP) or Hire Purchase (HP), you may have heard about voluntary termination. This legal right allows you to end your agreement early once certain conditions are met, usually after paying at least 50% of the total amount owed. But many people wonder, does voluntary termination affect your credit score?

The short answer is: voluntary termination does not directly harm your credit score. It is a legal right under the Consumer Credit Act 1974 and, when exercised correctly, should not be treated as a negative event. However, how it is handled by the lender, and how it is reported, can influence your credit file and the way future lenders perceive you.

In this article, we’ll explain what voluntary termination is, how it appears on your credit report, and how to minimise any potential impact on your ability to borrow in the future.

What Is Voluntary Termination

Voluntary termination (VT) is a clause in most regulated car finance agreements (such as PCP or HP) that allows you to return the vehicle early and walk away from the agreement without having to pay the remaining balance — provided you’ve already repaid at least 50% of the total finance amount, including fees and interest.

You do not need to wait until the end of the contract, and you are not required to give a specific reason. Many people use this option if their financial circumstances change or if they no longer need the vehicle.

Does Voluntary Termination Show on Your Credit Report

Yes, in most cases, voluntary termination is recorded on your credit report, but it is not listed as a negative mark. It will typically appear as:

• Voluntary Termination or Settled by Voluntary Termination next to the finance account

• The account status marked as settled or closed

• A payment history showing the account was managed up to the termination date

As long as you have made all payments on time and are not in arrears, this entry is not seen as adverse credit.

However, if you have missed payments or returned the car with outstanding arrears, this can impact your credit score negatively. Late or missed payments are what hurt your score, not the act of voluntary termination itself.

How Voluntary Termination Can Affect Your Credit Score

1. No negative impact if handled properly
If you meet the legal conditions for VT and return the car in good condition, the lender will mark the account as settled, and your credit score will remain unaffected.

2. Potential damage from missed payments
If you try to use VT while already behind on payments, the lender may report these arrears, which can lower your score.

3. Some lenders may view it cautiously
While voluntary termination is your right, some future lenders may view it as a sign that you chose not to complete a finance agreement. It may not reduce your score but could affect how some finance providers assess your application.

Real-World Example

Amira used voluntary termination after paying 52% of her PCP agreement and returned her car in good condition. She had no missed payments, and the account was marked as settled by voluntary termination. Her credit score was unaffected, and she was later approved for another finance deal with no issues.

By contrast, Lewis fell into arrears and then attempted voluntary termination. The lender recorded late payments on his credit file, which caused a significant drop in his score and made future finance applications more difficult.

Things to Check Before Using Voluntary Termination

• Have you repaid at least 50% of the total amount owed including fees and interest?

• Is the car in good condition with no excessive damage or missing service history?

• Are you up to date with payments? If not, speak to the lender to settle arrears first

• Have you read the terms and conditions of your agreement carefully?

• Will the lender charge fair wear and tear fees or collection costs?

Taking these steps helps ensure that voluntary termination is processed smoothly and without unintended consequences.

Will It Affect Future Car Finance Applications

Voluntary termination may appear on your credit file, and some lenders might ask about it during future applications. However:

• It is not treated the same as a default or voluntary surrender

• It does not carry a penalty in most standard credit scoring models

• If your credit score and income are strong, it should not prevent you from being approved again

Lenders may ask for an explanation if they see a VT on your record, especially if there are multiple terminations or short contract lengths.

Final Thought

Voluntary termination does not affect your credit score negatively if used correctly and responsibly. It’s a legal and consumer-friendly way to end a car finance agreement early, and when managed properly, it should not damage your ability to get credit in the future.

However, if your account is in arrears or you fail to return the car in acceptable condition, this could lead to negative entries on your credit report. Always speak to your finance provider before initiating a voluntary termination to clarify your position and avoid misunderstandings.