Will handing back my car keys ruin my credit rating?

Dear James,

I was looking to make a voluntary contract cancellation regarding a car I bought from Mercedes Benz. The contract stipulates that the car can be given back once half the payments have been made. Could you please advise if this will affect my credit rating in the future - whether it will be marked on my history?

Emily, Bristol

Dear Emily,

Your credit rating should not be affected. ‘Voluntary termination’ of a hire-purchase agreement is your legal right and if you’ve paid at least half of the total amount due and the car is in satisfactory condition then you should be left owing nothing. The lender may add a voluntary termination flag to the record of the credit agreement on your credit report, to explain to other lenders why the agreement was settled early. But as long as you have paid all of your monthly payments on time up to the point you hand the keys back, your credit history should not be damaged by this. Voluntary termination is actually an archaic form of debt relief and is not particularly popular with lenders, but I’ve seen no evidence to suggest that exercising this consumer right in any way damages credit scores. (March 2012)


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