If you’re having financial problems brought on by the spread of the coronavirus (COVID-19) outbreak that are affecting your ability to meet your car finance repayments, here are some things you can do to help.
What is a car payment holiday?
The deadline to apply for a car finance payment holiday, also known as a payment freeze, has been extended to 31 March 2021.
Your payment holiday can be up to a maximum of six months. So, if you have already taken the full six-month payment holiday, you cannot apply for another one. However, your lender might be able to help you in other ways.
If you’ve already taken your full payment holiday, it’s important you understand what happens when it comes to an end.
If you’ve not taken any holidays on your car finance payment yet, you can apply for a payment holiday of up to six months in total. However, you should continue to make payments if you can afford to.
If you’ve already taken a payment holiday, this can be extended up to a maximum of six months. However, it’s in your best interests to start your repayments again if you can afford to.
Cancelling your direct debit is not a payment holiday and will be counted as a missed payment if it has not been agreed with your lender. You should not cancel your direct debit without speaking to them first. A missed payment could show up in your credit file and may impact your ability to borrow money in the future.
Individual credit files should not be affected but if you are worried you should speak with your lender. You should also remember there are other ways lenders can tell whether you have taken a payment holiday which could impact future lending decisions.
Lenders might take into account other information when making lending decisions, including information provided by you or bank account information.
Who gets it?
If you’re already experiencing or reasonably expect to experience temporary payment difficulties as a result of coronavirus you should contact your car finance provider as soon as possible.
Car finance agreement types that are eligible for the payment holiday include:
- Personal Contract Plan (PCP)
- Personal Contract Hire (PCH)
- Hire Purchase (HP)
- conditional sale agreement
- credit agreement to purchase a vehicle such as a credit sale.
If you’re not sure if your car finance will be eligible, contact your car firm and ask them.
If they feel that a payment holiday would obviously not be in your best interests, you might not be able to get a payment holiday.
It does not apply to car finance agreements for business purposes.
What your lender will discuss with you before approval
Your car finance lender is required to talk to you about:
- how much you’ve paid off already (your balance)
- the amount covered by a payment holiday
- any increases in your monthly repayments after the payment holiday
- any increase in the total amount payable under your car finance contract once the payment holiday has ended.
They may also discuss alternative ways you can repay if this is more suitable for your personal circumstances.
Alternatives to a payment holiday
Coronavirus payment holidays did not affect your credit rating. However, if you reach a different agreement with your lender, it might have an impact on your credit score. It is important you check this with your finance provider.
If you’re still struggling with car finance payments and are unable to get a payment holiday, or your payment holiday has ended, there are still some ways your finance provider can help.
What to do if you can’t afford your increased car payments when your payment holiday ends
The first thing you should do is to get in touch with your car finance lender. Try to do this before your next payment is due.
Your lender is required to consider your situation and offer you additional help.
If you have car finance with an unregulated lender
If your car finance deal is with an unregulated lender and so would not normally fall under the scope of these changes, these providers are also being asked to adopt this guidance. We’ll provide further information when we know more.
Further help and guidance on car finance holidays can be found on the FCA’s websiteopens in new window
If you’ve had trouble getting in touch with your lender because of operational difficulties they’ve been experiencing, and so haven’t reached an agreement yet and you’ve then missed a payment which is reported on your credit file, speak to your firm to ask if the missed payment can be removed because you’ve been affected financially due to the COVID-19 crisis.
If this has happened firms should not be charging you for missed payments. If they have, ask your car finance company if these can be paid back.
PCP Guaranteed Minimum Future Value (GMFV) and PCH Residual Value (RV)
Firms should not recalculate the GMFV or RV in a way that is based on temporarily depressed market conditions because of coronavirus in an attempt to recover more of the original car value through your regular payments.
What else can you do
If you‘re struggling to meet your car finance payments, or simply want to cut costs, you might be able to pay off the agreement early or return the car.
If you’re struggling financially due to Coronavirus, find out what other steps you can take to help with your other bills on our Coronavirus and your money
Did you find this guide helpful?
Thank you for your feedback