If you took out a car finance payment holiday because of coronavirus and its now come to an end, it’s a good idea to understand what happens next, especially if you’ve suffered a severe income drop.
What happens when your payment holiday is over?
Once your payment holiday has ended, your car finance payments will start again automatically. Your finance provider will contact you before the end of your payment holiday to discuss your options.
The payments you missed will be added to your outstanding balance, so you might see an increase in your monthly payments. How large an increase depends on how long is left on your finance agreement. The longer left on your finance agreement, the lower the increase in your monthly payments.
Your finance provider will tell you how much in your first statement after your payment holiday ends.
If you can afford to make your payments again, you don’t need to do anything as they will restart automatically.
If you’re still going to struggle to make repayments after your payment holiday has ended, it’s important you get in touch with your finance provider as soon as possible. The options available to you will depend on how much you owe and what kind of finance agreement you have.
What options your car finance provider might consider
Personal Contract Purchase (PCP)
If you’re worried you may not be able to meet your car finance payments in future, or need to cut your costs even more, you might be able to return the car and cancel your contract.
If you decide to return the car, let the finance company know by letter or email – and keep a copy. Make it clear that you’re returning the car and ending the agreement.
If you don’t do this you could be seen to be defaulting on your payments, which could affect your credit file.
When returning your car and ending your credit agreement early, the condition of the vehicle is important. General wear and tear are acceptable. But you’ll be charged for the repair costs of things like broken wing mirrors or larger scratches.
Check with your dealer or finance provider to find out what’s classed as fair wear and tear.
If there’s damage that doesn’t count as wear and tear, it’s worth checking to see if you can get the car repaired by a garage before returning it if that’s a cheaper option.
If your PCP term is ending soon, but you can’t afford the balloon payment, you should ask your finance provider how they can help.
You could decide to refinance the balloon payment with your current finance provider or choose another provider. If the value of your car has fallen below your final payment, this might not be your best solution.
Hire Purchase (HP)
With hire purchase (HP), you can choose to return the car early if you’ve already paid for at least half of its cost including any finance. If you’ve already paid more than half the car’s cost, you won’t receive a refund of the difference.
If you decide to return the car, tell the finance company by letter or email and keep a copy. Make it clear that you’re returning the car and ending the agreement. When you’re ending agreements early, the condition of the vehicle is important.
Make sure you email or write to your finance provider explaining that you’re applying for voluntary termination. You don’t need to sign documents or fill out termination packs.
Your finance company may want to give you a penalty, based on the mileage of your vehicle.
This will be because you’ve done more miles than they expected.
Legally, they can’t charge you a penalty for this if you’ve taken reasonable care of the car.
Finally, always keep up the payments before applying for voluntary termination. If you’ve missed a payment, the finance company has more rights, and the missed payments will affect your credit file.
Personal Contract Hire (PCH)
This will usually be at the discretion of the personal contract hire (PCH) finance company. They may ask you to pay off all or a portion of the remaining payments if you return the car early. They will consider things like the remaining term of your contract and your mileage allowance.
The cancellation policy should be in the contract you signed when agreeing to the PCH arrangement.
Next steps if you have missed a payment
If you have already missed payments and are not able to come to an agreement with your lender, you should get debt advice as soon as possible particularly if you have other debts as well.
Make sure you’ve claimed everything you’re entitled to
Make an emergency budget
If you’re worried about cashflow, have a look at what you’re spending and what income you have coming in.
Look at how to cut your household bills, such as switching providers for your gas, electricity or mobile phone contracts.
When to get debt advice
If you’ve already missed payments and are not able to come to an agreement with your lender, it’s best to get advice as soon you can, especially if you’ve got other debts as well.
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