Cooling Off Period: Car Finance Jargon Busters

What happens if you have already signed a car finance agreement but then changed your mind a few days later? 🤔 It’s possible that you might be in this situation if for some reason you realise you no longer need to finance a car, and might prefer to buy one with cash. But is there a way to cancel the car finance deal you’ve already signed? Yes, there is. As with most contracts these days, car buyers also have a cooling off period when buying a car on finance in the UK. Let’s understand what this car finance jargon means. 

What’s a Car Finance Cooling Off Period UK?

A cooling off period, when buying a car on finance, is the 14 days that’s given to you in accordance with the Consumer Credit Act 1974, where you can withdraw from the car finance agreement without facing any penalties. 

Whenever you take out a loan or get car financing, you are entering into an agreement with a lender such as a bank or a car finance company. Under the law, you have the right to withdraw from this agreement within 14 days of signing the contract. The 14 days given to you is what’s referred to as the “cooling off period.”

The cooling off period is not only limited to car finance. All lenders providing credit are required to offer a cooling period for each client. Whether you’re an individual or representing a business, you may wish to get car finance. And, if you find that you need to withdraw from the agreement, and cancel your contract with the lender, you can do this without penalty, as long as it’s within the 14-day cooling off period. 

What Do I Do with the Financed Car?

When you cancel your car finance agreement within the cooling off period, it’s important to read and understand what the terms and conditions are with regard to your sales agreement too, to check you can return the vehicle and not face any penalties. It’s not enough to just return the car to the dealership because that doesn’t end your contract with the lender automatically, unless of course your finance deal is with them too. 

In most cases, the dealership and the finance provider are two separate entities. If you end your agreement with the lender, this doesn’t mean you’ve also extracted yourself from the agreement you have with the car dealership where you bought the vehicle. 

If you cancel your car finance contract because you’ve decided to pay with cash, then you have to get in touch with the lender and the dealership to explain what you want to happen. However, if you cancelled the car finance contract and also want to return the vehicle, make sure you know and understand the cancellation clause stated in your purchase contract with the dealership first so you’ll know the right process to get out of both those agreements. 

Cancelling Car Finance within the Cooling Off Period

After signing your car finance agreement with the lender, you are given 14 days to cancel the contract without any penalty. In situations where you think the best course of action is to get out of the agreement, the first step is to contact the car finance company urgently, and let them know that you want to invoke your right to cancel the car finance agreement within the cooling off period. 

The best way to get in touch with the lender is to formally give notice through email or letter that you want to cancel your car finance agreement with them. Do make sure they have received your notification! Check your copy of the agreement to find the contact details of your car finance company and use it to write the letter or email. 

Cancelling Car Finance After the Cooling Off Period

Is it possible to cancel the car finance agreement you have with a lender when the cooling off period has passed? Yes, you may still get out of the contract, but expect to face financial penalties. If you read the Consumer Credit Act, there are circumstances that allow borrowers to withdraw from their agreement early. Here are some examples:

  • You may cancel the agreement after the cooling off period, but you must do this before the agreed expiry date. You will have to pay half of your total debt and you must return the car. 
  • If you’ve already paid 50% of the amount you owe, you have the right to end the car finance agreement early but you must return the vehicle to the car finance company. 
  • You may also cancel your car finance agreement by paying the outstanding debt that you have so that you can bring your total repayments up to 50% of the total amount you owe. 

Before taking any steps to withdraw from your contract with a lender, read and understand your agreement with them first. For example, if you got a hire purchase deal, then there will be specific steps to take that are different if you got a personal contract purchase agreement. You may find out if you need to pay any fees for ending your agreement with the lender early by going through your copy of the car finance contract. 


Getting car finance and buying a car are major decisions that shouldn’t be taken lightly. It’s crucial to know your financial situation before getting into a financial commitment like this. Assess your finances, know your budget, and stick to what you can afford. 

It’s easy to be tempted by many great deals on offer in car finance. However, you need to be sure that you’ll be able to make payments on time every time so that you won’t have to worry about any late payments or be in arrears. Remember that late payments will affect your credit score negatively and it might be more difficult for you to apply for credit in the future. 

Car finance agreements usually last at least a year and can be as long as five or seven years. So make sure that you can afford to make car finance repayments every month throughout the entire duration of your contract with the lender. And in the case that you later find yourself in a difficult spot financially, get in touch with your car finance company immediately. You might be able to come to some agreement regarding the payments which will enable you to continue with the finance agreement and keep your car. 😀