Cancelling Car Finance Due to a Faulty Car

What cancelling really means when the car is faulty

If your car develops a serious fault, cancelling your finance can feel urgent and complex. The good news is UK law gives you powerful protections. Under the Consumer Rights Act 2015, you have a short-term right to reject within 30 days if the car is not of satisfactory quality, fit for purpose, or as described. After 30 days, you keep the right to a repair or replacement, and if that fails or is not provided within a reasonable time, you can pursue a final right to reject with a refund minus a fair deduction for use.

Finance adds a layer. With PCP and HP, the lender owns the vehicle until you settle, which means your contract is with the finance provider. If the car is faulty, your claim usually goes to the lender, not just the dealer. That can work in your favour. Lenders are regulated and must act fairly, follow the Consumer Credit Act, and engage with dispute resolution where needed.

The regulatory backdrop is shifting too. The FCA will lift the pause on handling motor finance complaints on 31 May 2026, allowing delayed cases to move again. Alongside this, a Supreme Court ruling in 2025 confirmed fairness duties around undisclosed commissions in car finance. Final FCA rules for a broad redress scheme are expected in early 2026, with lenders set to contact many eligible customers automatically. While undisclosed commission and vehicle faults are different issues, both shape how and when you complain, and whether you might receive compensation.

If your car is faulty, act quickly - evidence, timelines, and clear communication are your best leverage.

A measured approach helps: diagnose the fault, document everything, and make a formal complaint to your lender. If you are within 30 days, state your intention to reject. If outside, request a repair first, then escalate if it fails. Keep your payments up while the complaint runs, unless advised otherwise, to avoid arrears marks on your credit file.

Key takeaway: You can cancel car finance due to a serious fault, but the route depends on timing, evidence, and your specific agreement.

Who should consider this

This guidance is for UK drivers with PCP or HP agreements who are facing serious or recurring faults, particularly soon after purchase. It is equally relevant if your dealer is not responding or the lender is slow to act. If you are waiting on a motor finance complaint - including undisclosed commission issues - note that processing resumes from 31 May 2026, with many consumers to be contacted directly by lenders under the forthcoming FCA redress arrangements. If you funded a car through a personal loan or cash, your route differs, but the fault rights under the Consumer Rights Act still apply with the claim aimed at the dealer.

Your practical choices

1. Exercise the 30-day short-term right to reject and seek a full refund.

2. Request a repair or replacement, then pursue a final right to reject if it fails.

3. Agree a partial refund or price reduction and keep the car.

4. Make a formal complaint to the lender and escalate to the Financial Ombudsman Service if unresolved.

5. Use Section 75 (credit card deposit) where applicable for dealer-buyer purchases.

6. Voluntary termination if over 50 percent repaid - separate from fault rights.

7. Await lender contact under the 2026 FCA redress process for undisclosed commission where relevant.

What it could cost, the impact, and the risks

Are you likely to qualify

Eligibility turns on proof of fault and timing. Within 30 days of delivery, a material fault gives you the strongest position to reject and unwind the finance. After 30 days and within six months, the law presumes the fault was present at delivery unless the seller proves otherwise, which helps your case. Beyond six months, you can still claim, but the burden of proof shifts to you and an independent report becomes crucial. For PCP or HP, complain to the lender, not only the dealer, because the lender is responsible for the quality of the goods they financed.

If your situation also involves undisclosed commission on the finance agreement, watch for the FCA’s 2026 redress rules. Most eligible consumers are expected to be contacted directly by lenders, with an opt-out if you prefer to litigate. While that scheme focuses on commission fairness rather than mechanical faults, both may be in play and may be handled on separate tracks. Kandoo cannot give legal advice, but we can help you understand finance terms, prepare questions for your lender, and point you to impartial resources.

Step-by-step to cancel confidently

1. Gather evidence - invoices, messages, photos, diagnostics.

2. Notify dealer and lender in writing immediately.

3. State your remedy - reject, repair, or price reduction.

4. Keep paying while disputed to protect credit file.

5. Allow inspection and reasonable repair attempts.

6. If repair fails, escalate to final rejection.

7. Make a formal complaint and set a clear deadline.

8. Go to the Ombudsman if unresolved after eight weeks.

Upsides and trade-offs

Read this before you proceed

Check your delivery date, mileage, and service history. These shape which rights you can use and whether a deduction for use applies. Insist on written communication and keep a clear paper trail. Be cautious with third-party claims firms. Regulators have warned about excessive exit fees, duplicate representation on the same claim, and poor practices. Many consumers will not need a claims company because lenders will contact eligible customers directly under the FCA’s redress approach. If you are already signed up with a firm, review your termination rights - unfair or unclear fees can be challenged, and you can complain to the relevant ombudsman if needed. If the car is off the road, ask in writing for a courtesy car or reasonable expenses. Finally, do not stop payments without advice - missed payments risk damaging your credit profile even when your complaint is valid.

Next step: put your complaint in writing to your lender today and set a clear, reasonable deadline.

Alternatives if cancelling is not right

1. Agree a repair with a firm deadline and courtesy car.

2. Negotiate a price reduction for keeping the vehicle.

3. Voluntary termination if halfway through HP or PCP.

4. Sell the car with lender consent and settle the balance.

5. Refinance to a more affordable term once resolved.

FAQs

Q: Can I reject a car after 30 days? A: Yes, but normally after a failed repair or unreasonable delay, with a potential deduction for use. Within six months, the fault is presumed present at delivery unless disproved.

Q: Should I stop paying while I complain? A: Usually no. Keep payments up to protect your credit file. If the agreement is unwound, payments are refunded where appropriate.

Q: Do I need a claims firm to complain? A: No. Most consumers will not need one. Under FCA arrangements in 2026, many will be contacted by lenders directly. Third-party fees can be substantial.

Q: What evidence helps most? A: Dated photos or videos, technician reports, diagnostic codes, repair invoices, and a timeline of symptoms. Independent engineer reports carry weight for disputes beyond six months.

Q: Can I also claim for undisclosed commission? A: Potentially. A separate FCA redress framework is expected in 2026 for commission issues on agreements since 2007. You may receive direct contact from your lender.

Q: Who do I complain to first - dealer or lender? A: Notify both, but for PCP and HP the lender is your main counterparty and must handle your complaint fairly.

How Kandoo can help

Kandoo is a UK-based retail finance broker. We are not a law firm, but we can help you understand your finance options, prepare questions for your lender, and point you to impartial guidance. If you need to replace a faulty vehicle, we can explore suitable finance from our panel once your issue is resolved. Speak to us for clear, practical next steps.

Important information

This article is for general guidance in England, Wales, and Scotland. It is not legal or financial advice. Laws and FCA rules can change, including the 2026 redress scheme. Consider professional advice for your specific circumstances.