The question has been raised to whether or not taking a voluntary termination option for a PCP (Personal Contract Purchase) agreement will end up having an impact upon your credit rating. The simple answer is “no”, but let us now explain this in more detail, as there is more to this than what meets the eye.
As a reminder of what we noted in a previous article, voluntary termination is a clause included within a car finance agreement that allows the customer to have an escape route in the event of personal circumstances changing to such a degree that they are no longer able to keep up payments. It’s not something that people will do just because they have woken up one day and gotten tired of their vehicle; it’s an option that is only used as the final resort, and at a stage of the agreement when they are able to do so (meaning that they couldn’t just do so a few days into a multi-year car finance plan).
With this in mind, and considering that it is generally for financial reasons that a voluntary termination clause is activated, it’s understandable as to why some might assume that this would impact their credit rating. But if you think about it, taking a voluntary termination would actually be a step towards one’s finances rebounding in order to avoid their credit score declining. What’s more, a credit rating doesn’t just change overnight; therefore, should you find that your finances are dipping and that a voluntary termination prevents long-term debt, then the short-term decision to take this decision and move forward from there will begin to instigate a turnaround, thus not impacting the credit rating.
That being said, it may not be the news that your dealership and finance company wish to hear, depending on the timing and the factors leading to the voluntary termination. After all, if your intention is to try and then find a new car, even a cheaper one, those same organisations may wonder why (or more accurately how) they should trust you to complete all of the payments when you had to exit the current agreement early. It may also cast some doubt in your mind as to whether it would be worthwhile to try and enter another car finance agreement. But purely on the subject of your credit score, ultimately a voluntary termination will have no major impact.
You can find out more about voluntary termination by contacting us and we will be happy to help you with the appropriate steps to take with complex car finance situations.