Cancelling Car Finance Due to a Faulty Vehicle: Your Rights

Can you cancel finance because the car is faulty?

Yes – but it depends on the circumstances. Cancelling a finance agreement is not the same as returning a faulty car, and understanding the distinction is important before you act. The Consumer Rights Act 2015 gives you the right to reject a defective vehicle; that rejection, if successful, unwinds the finance agreement rather than simply ending it. Separate rights under the Consumer Credit Act 1974 give you additional routes to exit an agreement that has been tainted by misrepresentation or breach.

The difference between rejection and cancellation

Rejection under the Consumer Rights Act 2015

If your car is faulty, your primary remedy is to reject it under the CRA. A successful rejection entitles you to a refund of what you have paid and releases you from the outstanding finance. This is not a cancellation in the contractual sense – it is a statutory right to treat the contract as discharged because the goods did not conform.

Cancellation under the Consumer Credit Act 1974

If you signed the finance agreement away from the lender’s premises – for example, at a car dealership or via a home visit – you may have a short cooling-off period under the CCA. This right to cancel is separate from any fault-based rejection and typically lasts 14 days from the day after you receive your credit agreement documentation.

Most car finance agreements signed at a dealership do not qualify for this cooling-off right because the Consumer Credit (Agreements) Regulations treat dealer premises as the lender’s premises in most cases. However, agreements signed remotely or at your home may qualify.

Can you cancel a PCP or HP agreement for any reason?

Outside of the fault-based and cooling-off routes, you can voluntarily terminate a regulated HP or PCP agreement under Section 99 of the Consumer Credit Act 1974 once you have paid at least half of the total amount payable. This returns the vehicle to the finance company with no further payments required, but you do not receive a refund of what you have already paid.

This is a useful exit route if the vehicle is simply not suitable for your needs – but it produces no financial recovery. If the car is genuinely faulty, rejection is the stronger remedy.

The role of Section 75 of the Consumer Credit Act

Section 75 is one of the most powerful consumer protections in UK law. It makes a lender jointly and severally liable with a supplier for any misrepresentation or breach of contract where the cash price of the goods or services is between £100 and £30,000 paid for wholly or in part by credit card.

Section 75 means that if the dealer sold you a faulty car and refuses to remedy it, you can bring your entire rejection claim directly against the finance company. This is particularly useful when:

• The dealer has gone out of business
• The dealer is refusing to engage or is disputing the fault
• You want to exercise pressure via the finance company’s own compliance obligations

What steps should you take?

1. Stop making payments only on legal advice – unilaterally stopping payments can harm your credit rating even if the underlying claim is valid.
2. Write to the finance company formally, citing the fault, the date it became apparent, and the relevant statutory rights.
3. Retain all evidence: photographs, inspection reports, correspondence with the dealer, and finance agreement documents.
4. If the fault emerged within six months of purchase, you benefit from the CRA presumption that it was pre-existing – the dealer must prove otherwise.
5. Seek legal advice if the finance company disputes your claim or proposes a remedy that does not match your entitlement.

What about your credit file?

A legitimate rejection claim does not automatically protect your credit file. If payments are missed during a dispute, this can be recorded. Specialist lawyers routinely advise clients on protective measures – including formal complaints to the finance company that trigger an internal hold on default reporting – while a claim is under way.

How Stormcatcher Law can help

Our team deals with lots of faulty car bought on finance disputes daily. We can assess whether your rejection claim is supported by the facts, advise on the most effective route to exit your agreement, and handle the entire process on your behalf. Initial advice is free.