Voluntary Termination - Bad For Credit Score?

imb4tman · 24 Mar 2011 at 14:22

As the title really. Depreciation has been unkind to my car and I'm probably looking at a £1000 gap between a private sale and clearing the finance.

I am however past the half way stage so I believe I'm able to voluntary terminate the contract but does this effect your credit score?

ShadowMan · 24 Mar 2011 at 15:10

They will put a note against your credit file to say you terminated but it is allowable by the regulations so I cannot see how it could affect you.

Lots of consumer forums believe it has no effect and there are lots of people who have VT'd and are able to get credit easily.

DrSteve · 24 Mar 2011 at 15:27

Have done it twice after passing the half way stage and not had a problem.

Dup · 24 Mar 2011 at 15:29

I did it with my CTR but I haven't applied for credit since and probably won't for some time anyway.

The rule is they can put a note on your file to say you voluntarily handed the car back to settle the premium, but they might not. Whether creditors take this into account in the future is up to them, but I didn't feel it was too much of a risk and went ahead.

Remember that the car has to be within a certain quality and road worthiness for them to take it back. It has to have so much MOT and tax left etc or they might charge you to hand it back. My car had a few stone chips and bubbly wheels but the guy who picked up was well impressed with how I'd kept it. It's just got to be acceptable considering the mileage and age so you can't go too wrong unless it has obvious damage.

RedvGreen · 24 Mar 2011 at 15:35

As said above, you stand to get charged for everything - missed services, wear and tear the assessor deems unrealistic for the mileage etc.

I sold a pristine MR2 and was charged £400 for missing service history and a scratch on the steering wheel - ironic since I owned it for 1yr bought from a Toyota main dealer. Got the costs back.

The assessor gets paid to find fault so expect a fight with the finance company later - don't disagree with the assessor.

Toyota finance marked 1 month arrears on my credit history when I terminated, I got it removed a week ago finally.

imb4tman · 24 Mar 2011 at 17:54

Well the car is in good condition with full dealer servicing and is taxed and up to date with the MOT so that shouldn't be a problem. I was just worried it counted as a default which I don't want on my credit rating but if it's just a note it shouldn't make any difference.

I'm sorting out a new car next week then terminating, so by the time I apply for credit again with the note on record it will be 3 to 4 years down the line anyway.

MrMoonX · 24 Mar 2011 at 18:00

no it doesnt hurt your score, you wont get charged anymore unless its damaged and missed a service

[TW]Fox · 24 Mar 2011 at 18:04

imb4tman said:
I'm sorting out a new car next week then terminating, so by the time I apply for credit again with the note on record it will be 3 to 4 years down the line anyway.

Is your next car on credit as well?

This is the sort of thing that happens when you sign credit agreements with little or no deposit on cars which suffer badly from depreciation, sadly. It really is best to either avoid Vauxhalls and stuff on credit and/or make sure you put some equity into the deal.

Then you dont end up in negative equity.

imb4tman · 24 Mar 2011 at 18:20

[TW]Fox;18743631 said:
Is your next car on credit as well?

This is the sort of thing that happens when you sign credit agreements with little or no deposit on cars which suffer badly from depreciation, sadly. It really is best to either avoid Vauxhalls and stuff on credit and/or make sure you put some equity into the deal.

Then you dont end up in negative equity.

Yes but I've learnt my lesson. The next car is on PCP with guaranteed minimum value at the end, so after 32 months it's worth at least the settlement figure or it's the dealerships problem.

[TW]Fox · 24 Mar 2011 at 18:29

imb4tman said:
Yes but I've learnt my lesson.

Ok...

The next car is on PCP with guaranteed minimum value at the end

Maybe not

You don't ever get something for nothing - in this case, you are paying interest on the full amount despite the GFV. Post up the details of the deal and we'll see if its any good or not.

Is there any reason why you cant just buy the car with a good old fashioned banked loan and a pot of cash?

imb4tman · 24 Mar 2011 at 18:50

The reason I don't want to put any money in is because I won't keep the car past 3 years, therefore all a deposit will do is reduce the monthly payment.

The quote is at work but it goes something like this;

Cash price £19845
Deposit £0
36 Monthly repayments of £335
Servicing and tyre insurance included

The guaranteed value at the end means I don't have to worry about it from month 32. If it's worth more than the finance I get the equity as a deposit on the next car, if it's worth less, then it's the dealership's problem and I just hand the car back.

[TW]Fox · 24 Mar 2011 at 18:52

Thats quite a lot of cash to spend on what sounds like - due to the numbers involved in this and the previous deal - a very ordinary car.

You are effectively paying £12,000 to own the car for 3 years - what is the GFV?

What is the car?

If you have no deposit I'm really not sure a £20k car is the answer to any question you might pose.

imb4tman · 24 Mar 2011 at 18:58

It's a BMW 1 series. The PCP finance also means I can call the car an assset and claim the monthly interest and a tax allowance of 20%.

[TW]Fox · 24 Mar 2011 at 19:04

Why do you want to spend £20k on what is presumably just a low end diesel 1 Series? :confused:

Surely there must be a better way for you to get a car than stitching yourself up with PCP's and the like when you don't have a deposit.

imb4tman · 24 Mar 2011 at 19:12

It's the 118i M Sport. Like I said the deposit is just money down the drain if you're not intending on paying off the car in full then keeping it a bit longer. All a deposit will do for me is reduce the monthly repayments. It doesn't matter if there is interest on the whole amount because I'll claim it back anyway.

[TW]Fox · 24 Mar 2011 at 19:13

The 118i M Sport is probably one of the worst cars in the BMW range. I simply cannot understand why you'd want to spend £20k on one.

Have you not been burnt enough by car finance?

You dont claim the interest back either, the interest is tax deductable, thats not the same as paying no interest. It's also only on the proportion of the interest that is deemed to be for business use - so if half your usage is business use, only half the interest is deductable.

imb4tman · 24 Mar 2011 at 19:27

I get 80% business use. The monthly amount isn't the only thing to consider. The power economy trade off isn't too bad when you're doing high mileage.

I'm sure I could get a better car for 20k. But even with a 20% deposit a 20k car will cost more a month with a bank loan over 4 years and that's with no interest. Then there is higher fuel costs and just about everything else too.

[TW]Fox · 24 Mar 2011 at 19:31

imb4tman said:
I get 80% business use. The monthly amount isn't the only thing to consider. The power economy trade off isn't too bad when you're doing high mileage.

The power economy tradeoff with the 4 cylinder petrol engines is rubbish. I'm no diesel fan but if you do high mileage why would you choose a 118i over a 118d?

I'm sure I could get a better car for 20k. But even with a 20% deposit a 20k car will cost more a month with a bank loan over 4 years and that's with no interest.

Why are you so obsessed with how much it costs per month? If things are so tight that the monthly payment is all that matters then why are you buying £20k cars?

It's total cost of ownership that matters, not monthly payment!

Then there is higher fuel costs and just about everything else too.

Sorry but what? Higher fuel costs? I've not even suggested an alternative car and you are trying to argue you need to buy a £20,000 118i and nothing else will do because of fuel costs?

I am beginning to see why you are currently sitting in negative equity with car finance having to a voluntary termination.

RedvGreen · 24 Mar 2011 at 19:33

I think he may be beating around the bush here - do you actually have disposable cash to throw at a deposit/total purchase?

If not, that is why he considering finance Fox (aka his only option!).

[TW]Fox · 24 Mar 2011 at 19:34

I just don't get the rationale behind spanking away £20,000 on a 100% financed ordinary 4 cylinder hatchback.

If he wants a 4 cylinder hatchback then brilliant - don't spend 100% of somebody elses £20,000 on some finance deal on one, you can get largely the same experience for much much much much less money.

Even more so if his financial situation is tight enough that he has no spare cash and monthly payment is more important to him than total cost of ownership!