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?
If you’re struggling to pay your car finance, you can ask for a payment holiday, also known as a freeze, of up to three months if you’ve been financially affected during this coronavirus crisis. You might be offered more or less than three months depending on your circumstances.
It means you could be allowed to delay the payments you normally make for your car finance repayment plan. That delay would mean any payments would not be expected for the three months after you’ve made the arrangement with your car finance provider.
Remember this help is temporary, and will only last for three months. Only take it if you need it, and use the time to plan what you will do when the payment holiday ends.
To apply for a payment holiday, contact your car finance firm. Find out more below.
You can only get a payment holiday if the company who organised your car finance approves it.
If the firm thinks you’ll be worse off by taking a payment holiday, they won’t approve it, but will look at other ways of supporting you.
You’ll still be charged interest for the months you’re delaying your payments for, but won’t get charged extra fees or charges. The three months of the payment holiday during COVID-19 also won’t affect your credit rating – but missing payments after this time will.
You can apply to defer payments for up to three months at any point before 31 October 2020.
If you have already taken a car finance payment holiday, but are still having financial problems, you can apply for another three month freeze up until 31 October 2020.
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.
You can apply to defer payments for up to three months at any point before 31 October 2020.
It does not apply to car finance agreements for business purposes.
How to apply for a car payment holiday
Contact your lender and tell them you’re experiencing payment difficulties due to coronavirus. They should have information on their website about how in general they’re helping their customers. You might be able to contact them online if you can’t get through on the phone.
Keep in mind that you’ll still incur interest during the break in payment and your lender should explain what impact this will have on your payments going forward. However, your car finance firm should not charge you additional fees or charges.
For more information about how it’ll work go to the FCA’s website
The three month payment holiday taken out specifically during COVID-19 means that a payment holiday should not affect your credit rating. But if you miss payments after this coronavirus arrangement, it will impact your credit score.
Cancelling Direct Debits
You should not cancel your Direct Debit without speaking to your lender first. 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. A missed payment will show up in your credit file and may impact your ability to access finance in the future.
What your lender will discuss with you before approval
Your car finance lender might 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. You can see some examples of alternative ways of paying, below.
For example, your finance provider may choose to enter into a new agreement with you to vary the terms of your previous agreement. Any new terms should not leave you worse off than your previous deal.
Potential knock on effect - increasing the length of your car finance term
Because you’ll be deferring payment for three months, your lender might extend your car finance term.
Extending the length of your car finance agreement means you might see a smaller increase in your monthly repayments. But you will be paying your car finance back over a longer period which means you will be paying more in interest over the term of your car finance.
There may be wider implications of the extension – such as potential knock-on effects on insurance, warranties, breakdown cover or MOT. Your lender should help you understand these implications.
Information your lender should provide for you
Your lender should explain the impact of any option on your monthly payments or the total amount of time your car finance will last.
They should also discuss alternative ways of repaying the amount if this is more suitable.
Any information should be provided in good time and make clear that you could be paying more over the lifetime of the car finance compared to an alternative way of repaying.
You should also always ask your car finance provider to explain what this will mean for you and whether there are other options which may be available to you, to make sure everything is clear and you understand what you’re agreeing to.
If you’re already behind with car finance payments
Being behind with your car finance payments already does not exclude you from applying for a car finance payment holiday if this is appropriate for your circumstances.
The Financial Conduct Authority (FCA) has suggested that firms should not repossess cars during this period of coronavirus support until 31 October 2020 but if you’re worried, speak to your lender straight away
This is no guarantee though. If your car finance was terminated before the COVID-19 payment holiday arrangements rules came in, your lender might choose to repossess your vehicle.
Also, if you want your car to be repossessed, lenders can choose to do it, as long as social distancing measures are being adhered to.
What alternatives are there to a three month payment holiday?
You might be turned down for a three month holiday when it’s not in your best interest because there are better solutions that would leave you with less overall debt but still meet your needs. Here are some examples of what you could be offered.
Shorter payment holiday
If your loss of income is expected to be less than three months, you might be able to agree with your lender that a shorter payment holiday of a length that suits your needs would be better. You would still have a period of financial support from a payment holiday, but collect less interest and so have less debt.
Accepting lower monthly payments
Or, if you’ve only lost part of your income, your car finance provider could offer to accept a payment that was below the normal payment due, and might offer to not charge interest over the agreed period. By paying back a little every month, you would have more money spare, but also be paying down the car finance balance, again putting you in a better position than taking a three month payment holiday.
Interest or capital payments only
You could also be offered the option of making interest or capital payments only, depending on your level of income during the virus outbreak. This will reduce any increases in your monthly repayments compared to some other options once your car payment holiday period is over. But you’ll still need to pay back any shortfall in your normal monthly payments.
Ask about your credit rating
If you’re not getting a payment holiday but instead have come to a different agreement with your lender, such as a lower monthly payment, then it might impact your credit score, so ask your car finance provider. Even if there’s a negative mark on your credit file it’s worth speaking with your car finance firm to ask if this can be removed if you’ve been affected financially due to the coronavirus crisis.
No payments or a small token payment
A firm might allow you to make no payments or a token payment not exceeding £1 where firms’ systems will not allow a zero payment for a few months. If you had a guarantor they would also not be asked to pay during this deferred period.
Your PCP term is ending soon but you can’t afford the balloon payment
Ask your firm how they can help in this situation if the coronavirus crisis has impacted your plans to pay off the balloon payment.
As car values might have fallen during this crisis, refinancing the balloon payment might not be the best solution.
If you decide to return the car but it’s impractical due to the coronavirus situation
Firms will tell you if you’re not allowed to use the car once the agreement has ended.
To avoid paying further tax and insurance you’ll need to apply for a Statutory Off Road Notification (SORN) declaration if you’re the registered keeper of the vehicle and your finance provider want to stop taxing and insuring it.
The car will need to be ‘off the road’. This means it has to be on a driveway or in a garage, and can’t be parked in a car park or on the street.
If you can’t keep the car off the road you’ll need to keep paying the tax and insurance. But you could contact the insurance provider to see if the premium could be lowered, or if they can give you a delay to make your payment.
If your lender hasn’t given you specific guidance around what to do, get in touch with them to check.
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 expected to offer you additional help. This might involve extending the payment deferral period by three months or reducing the payment or waiving some of the interest.
If you don’t get in touch with them they may assume you can afford to restart your monthly payments in full.
Don’t cancel your direct debit without speaking to your lender first.
If you do, this will be counted as a missed payment. It will show up in your credit file and may affect your ability to get finance in future.
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