Avoid mileage penalties on your car finance deal

Money

Motorists on car finance deals may be able to avoid penalties for going over their mileage limit if they cancel early.

Almost nine in ten cars in the UK are bought through personal contract purchases (PCPs).

Customers pay a chunk of the car’s value for up to five years, and a lump sum at the end if they decide to keep the car. Under consumer law they can also hand back the car early.

The Consumer Credit Act 1974 states that as long as half of payments have been made and the car is handed back in good condition there should be nothing more to pay

The Consumer Credit Act 1974 states that as long as half of payments have been made and the car is handed back in good condition there should be nothing more to pay

The Consumer Credit Act 1974 states that as long as half of payments have been made and the car is handed back in good condition there should be nothing more to pay

Most contracts state a penalty must be paid for exceeding a set mileage — often up to 40,000 for the contract or up to 10,000 a year. Penalties can be 5p a mile.

But legal experts say that finance firms are not allowed to do this. 

They say the Consumer Credit Act 1974 states that as long as half of payments have been made and the car is handed back in good condition there should be nothing more to pay.

This is what is called a Voluntary Termination, or VT. 

However, those who exercise their right to terminate their agreement early – therefore avoiding the mileage levy – risk black marks on their credit files. 

How PCP payments are structured can also restrict when drivers can use a VT to escape their finance agreement.

If the customer has opted for a small deposit and low monthly payments with a much larger final balloon payment to be settled at the end of the contract, some may not have paid back half the value of the car until the final stages of their agreement.

This is Money covered a case of this last year where a driver was unable to exercise her right to terminate the finance agreement she was mis-sold

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