What Can I Do If I Cannot Afford My Car Finance?

You have more options than you might realise if you’re struggling to pay car finance. What these are depends on your circumstances and the type of car finance agreement you entered into. You may be able to sell your car, refinance your repayment terms or request a payment holiday.

John Ellmore 30 November 2020

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If your financial circumstances have changed and you are struggling to afford your car finance, you might want to end your plan early.

At the time of writing, the COVID-19 pandemic has meant many have had a tough few months financially - with many Brits being put on furlough for extended periods, at 80% of their usual wages, or losing their jobs completely. Even those who have continued working may have found money tighter than usual, making it difficult to meet all their financial commitments.

Whatever your reason for struggling to make your car finance repayments, you’ll want to know what your options are, so you can regain control of your finances.

What happens if I can’t pay my car finance payment?

Missing even one car payment can have potentially serious knock-on effects on your financial circumstances.

So, whether you miss a payment in a tough month because you want to prioritise other costs or debts, get to your repayment date and find you are overdrawn, or simply forget to make a repayment – here’s how your finances could be impacted:

  • You might face a late payment fee
  • You’ll be a month behind repayments
  • Your car finance interest rate could be increased
  • You could have a mark put on your credit score, potentially lasting seven years

If your credit history has been negatively impacted, read our guide to rebuilding your credit history for more information.

What if I can’t afford my car finance?

Depending on the terms in your contract you may be able to temporarily freeze your finances with a payment holiday during the COVID-19 crisis.

The Financial Conduct Authority (FCA) has encouraged providers of finance products to consider temporary payment freezes during the global pandemic. This applies to personal loans, mortgages and most types of car finance products.

Those in car finance contracts that haven’t yet requested a payment holiday from their provider have the opportunity to do so up to October 31st, 2020.

Different rules apply in Scotland, where the government has extended the moratorium period – meaning the temporary prohibition of an activity – from six weeks to six months. Because of this your car cannot be seized from you by your provider during this period.

The provider can, however, apply for a decree, which could come into effect after the six month period.

I’m about to miss a car finance payment, what should I do?

The best thing you can do when you are about to miss a finance payment of any description is to alert your provider. This gives both parties the opportunity to discuss a new payment schedule that will ensure the provider continues to receive repayments and that the borrower can afford to make payments on a monthly basis.

If you have just missed a payment you should report it immediately; your provider may give you more time to repay it and they may delay reporting the missed payment to credit reference agencies.

If you cannot afford your car finance, the important thing to remember is that there are options.

Try not to just bury your head in the sand; look through the contract and speak to your finance provider. Set your options out and choose one that fits as closely as possible with your long-term financial goals.

Can I cancel my car finance?

Yes, you can cancel your car finance. Cancelling your car finance early is a solution if you cannot afford car finance payments, or if you want to sell your vehicle and move to a new car finance deal and car.

Different rules apply to hire purchase and personal contract purchase car finance agreements, so ensure you know your rights and what costs you may incur before committing to any course of action.

Can I sell my car if it’s on finance?

Yes, it is possible to sell a car when you have outstanding credit in your car finance agreement. However, in order to sell your car early, you will have to end your credit agreement and pay the settlement figure set by the lender to get full ownership of the car (if applicable), including any early repayment fees.

Check our guide above to find out the rules that apply to your type of car finance.

Can I return my car back to the provider?

Yes, you can, but only after you’ve paid 50% or more of the total repayment costs on your vehicle, including any interest that has accrued during the length of your term. This is known as “voluntary termination”.

If you have paid more than 50% when you choose to return your car, you won’t get a refund on the payments passed the halfway point of the total costs, so it’s worth knowing when you are approaching this point.

The halfway point of repayments varies between different types of car finance, so ensure you know your rights or you could lose out financially, due to depreciation or paying back more than you need to.

Can I be imprisoned for not paying my car finance?

You will not go to prison for not repaying your car finance. As with other types of credit, your provider will contact you after you have missed payments. Usually, at this point your provider will discuss with you how to make up your missed payments and pay the arrears that have resulted.

If you continue to miss payments, they might issue a default notice and take action to repossess the car. A debt collection agency could become involved and a county court judgement may be issued against you.

If you have other debts, and you’re worried about the prospect of being sent to prison, take a look at the guidance from debt charity Step Change.

About the author:

John Ellmore is a director of NerdWallet UK and is a company spokesperson for consumer finance issues. John is committed to providing clear, accurate and transparent financial information. Read more

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