Service personnel and their families can experience difficulty in accessing commercial products and services, such as finance and loans, due to their mobility and time spent outside the UK. To address this, the Ministry of Defence (MOD) has worked with the UK financial sector to improve the ability of armed forces personnel to access financial products.

Help accessing credit

The representative bodies for the financial sector are raising awareness within their membership of how to avoid disadvantage for service personnel and their families. They have worked with MOD to develop a useful guide: Financial Top Tips for Service personnel (gov.uk), with information on credit rating maximisation, mortgages and loans, BFPO addresses and many types of insurance.

Loans for Armed Forces personnel

The MOD has made it possible for 3 of the UK’s leading credit unions to join forces, Joining Forces Credit Union, and make simple savings accounts and loans available to the Armed Forces members and their families.

Go to Website (joiningforcescu.co.uk) >

Car Finance: PCP

Our evidence suggests Service personnel sometimes experience issues with Personal Contract Purchase (PCP) car finance agreements, particularly if assigned overseas.

PCP’s are popular as they are an easy way to access a new car at reasonable cost, however they are legally binding and difficult to terminate in certain circumstances. Always consider the impact of early termination and how it may affect you, and always read the small print.

Here we share some useful information to help you make an informed choice.

What is PCP?

PCP is similar to hire purchase, in that you pay an initial deposit followed by monthly instalments. However, with PCP you do not automatically own the car at the end of the term. When the term ends, you are given a choice:

  • Make a final and lump sum payment to purchase the vehicle and own it outright.
  • If the car has maintained value, use the equity as a deposit on a new vehicle via a new PCP contract.
  • Hand the car back and walk away, no further payments, no money due.

Terminating a PCP: your legal rights

UK law provides you with the right to voluntarily terminate a PCP agreement. The law serves to protect consumers who no longer require the car or are unable to afford the repayments, following a change in circumstances. It also protects the finance company, ensuring borrowers cannot easily back out of their contract obligations; it does this by setting a minimum repayment amount of 50% of the total amount payable.

Voluntary Termination of PCP

Voluntary termination of a PCP is the legal right of a purchaser to cancel the finance agreement early in certain circumstances. Often car dealerships do not promote this option or explain it well.

The right to voluntary termination is particularly useful for Service personnel, for instance if assigned overseas. Depending on the circumstances, voluntary termination may be possible, with nothing more to pay and no contract penalties applied.

Am I eligible for Voluntary Termination?

You can end your PCP agreement and return your car to the finance company as long as:

  • You repay 50% of the total amount payable (not the total amount borrowed, as you need to include interest and fees, and not half of your scheduled monthly payments)
  • There are no damages to the car (over and above normal wear and tear)

Assuming you have complied with both above, you’ll have nothing further to pay.

Voluntary Termination Vs Voluntary Surrender

If you need to terminate your contract, be clear in your language, point out that you are exercising your legal right to Voluntarily Terminate your car finance agreement as set out in your contract and the Consumer Credit Act 1974.

By using the correct terminology, the finance company can’t misconstrue termination for Voluntary Surrender, which is less favourable – under a Voluntary Surrender you return the car but still owe the remaining finance. The finance company will then sell the car at auction (adding on extra costs for collecting and disposing of the vehicle) you will then be required to pay the outstanding amount.

PCP considerations

Before you enter a PCP agreement consider the following:

  • Is there a chance that you could be posted overseas during the contract period?
  • Have you checked whether the contract would allow to take your car overseas (EU only)with you? Some PCP contracts do not allow this.
  • What are the penalties for breaking the contract before the end of its term?
  • At what point during the contract will you have paid 50% of the total cost including fees and interest?
  • Check whether your provider has signed up to the Finance and Leasing Association Protocol, the purpose of this Protocol is to ensure that Service personnel face no disadvantage compared to other citizens in the sale and operation of motor finance agreements

Financing a vehicle overseas

The aim of Overseas Private Vehicle Provision (OPVP) is to assist Service personnel, permanently assigned to or from an overseas location, with access to a private motor vehicle. Previously, personnel were only able to claim for vehicle purchases, an amendment to the Overseas Private Vehicle Provision now includes assistance with leasing a vehicle in an overseas location.

We recommend checking the finer details of any leasing agreement in an overseas location, as OPVP will assist with a capped rate of fees associated with terminating any agreement, and this may not cover the full cost. As we have mentioned, exercise caution with any lease agreement and make sure you know your rights and responsibilities should you need to terminate the contract earlier than expected.

How we can help

There are many other ways in which the Families Federation can help you – read our case studies online, or you can contact the team online if you have any issues you would like support with..

Financial support for Service personnel

The Royal British Legion (RBL) provides Serving personnel with help and guidance with financial matters.