The half rule is part of the Consumer Credit Act 1995 and gives you the right to end a PCP or HP agreement at any time. The half rule limits your liability (the amount you are responsible for) to half the PCP or HP price of the car. Your documentation (the agreement) from the finance company must show the figure for half the PCP or HP price of the car. This is different to the price you paid for the car as the PCP or HP price will also include the interest charged by the finance company.
- If you have paid less than half of the PCP or HP price of the car, you can give the car back, and you will only owe the difference between what you have paid, and half of the price of the car. You do not have to pay half the PCP or HP price to the finance company before you end the agreement. However, you will have to pay the difference between the payments you have made to date and half the PCP or HP price.
- If you have paid more than half of the PCP or HP price of the car and have not missed any payments, you can end the agreement and hand back the car. You will be responsible for the cost of any repairs that are necessary. If you have paid more than half of the PCP or HP price, you will not be entitled to any refund.
Can you use the half rule even if you are in arrears?
Yes – you can end your agreement and use the half rule while you are in arrears. However, you will still owe the arrears to the finance company. They may also have the right to charge you additional interest on your arrears – called surcharge interest. You need to check your original agreement to confirm the amount of interest they can charge on those arrears.
How to use the half rule
- Write to your car finance provider or bank, telling them you want to return the car using the half rule – use our sample letter to help you. Don’t give instructions over the phone – putting it in writing makes it very clear how you want to end the agreement
- Agree a pick-up point, or return the car yourself
- Take pictures of the car, inside and out, to confirm the condition of the car so you are not liable for any extra costs if the car gets damaged after you return it. If there is damage to the car, you may want to get the repairs done by your own mechanic before you send it back, or your provider may charge you for the cost of any repairs
- It is very important to read any documentation sent out by your car finance company when you return your car using the half rule. Do not sign a ‘voluntary surrender form’ as you will give up your right to return the car under the half rule
- Return the car to the garage, or to whatever location has been agreed between you and the finance company
You will not need to make any further payments from the date you return the car. However, if your next payment has already been processed you should contact the finance company to get a refund.
Voluntary surrender means that you volunteer to give the car back to the finance company but still have to pay what you owe – your debt does not disappear with the car. When you sign a voluntary surrender form, the finance company sells the car and the money they get goes towards your debt but you will still have to make repayments until the entire debt is paid off.
Voluntary surrender will usually cost you far more than returning the car using the half rule, as with the half rule you only owe half the PCP or HP price. Depending on how much you still owe the finance company, and how much the finance company gets for the car, you could owe far more money with voluntary surrender than the half rule.
With a PCP or HP, your car can be repossessed if the terms of the contract are broken, for example, by missing repayments. If you have paid less than one-third of the purchase price, the car finance company can take back your car without taking legal action against you. If you have paid more than one-third of the purchase price, a lender cannot repossess the car without taking legal action. In addition, the car cannot be repossessed from your driveway, regardless of how much money you’ve paid back.
If your car is repossessed, the finance company will generally sell the car and the money goes towards the outstanding debt, but you will still have to make repayments until the entire debt is paid off.
