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Nov
Your car finance will often be repaid over a period of two to five years. But a lot can change over a few years, including your financial situation. When circumstances change, you could find that you’re no longer able to make the payments that you could at the start of your agreement. If you’ve found that you can no longer repay your car finance, there are a few options available to you.
What happens if I miss a car finance payment?
Even if you miss just one car finance repayment, it could have some implications. Usually, the lender will contact you if you miss a payment and allow you a grace period to pay what you owe that month. You might have to pay a late payment fee and you could accumulate extra interest charges. It can be best to contact the lender in advance or as soon as you notice a payment has been missed, so you can discuss the next steps and when you will be able to make the payment.
If you’re unable to make the payment during the grace period, you could end up with a mark on your credit record, that will stay there for six years. This can affect your eligibility and access to other financial products, like loans and mortgages.
If you continue to miss payments, the lender might decide to repossess the car. If you have paid more than a third of the loan, they will need to obtain a court order to do this. This will also result in another, separate mark on your credit record.
What can I do if I can no longer afford my car finance?
If your financial circumstances change and you can no longer afford your car repayments, the first thing you should do is contact your lender. You should explain your situation to them, even if you think only one or a few payments will be affected. They may be able to offer a deferral or a new payment schedule until you’re able to make the full payments again.
It may be that you will be unable to pay the car finance at all going forward. In that case, you have a few options available.
Voluntary termination
If you’ve paid more than 50% of the total amount detailed in the finance agreement, you can choose to voluntarily terminate the agreement. You will need to contact your lender to do this. You will have to return the car, but you won’t have to pay any extra fees. If you have PCP car finance, you will still have to pay the final payment.
If you haven’t yet paid 50% of the agreement cost, you might be able to make a one-off payment to reach this value. You can then undergo voluntary termination.
Refinancing your loan
You can speak to your lender to see if there is scope to refinance your loan. It may be that the timeframe can be extended, which could give you lower monthly payments. However, with this option, you will usually end up paying more overall. Refinancing might not be a viable option for those with a bad credit score, as they may not be eligible for the more competitive interest rates.
Part-exchanging your car
It may be possible for you to part-exchange your car for a cheaper one with lower monthly payments. This option will only be open to you if you’re not in negative equity with your lender, i.e. if the amount you owe on our vehicle is less than what the car is currently worth. You will have to return the car to the lender, who will pay you a settlement fee. You can use this towards the purchase of your next car.
Selling the car (if you bought the car with a personal loan)
If you have used car finance to buy your car, you will not be able to sell it before you have paid off the total amount. This is because the car does not technically belong to you. If you want to sell your car that you’ve purchased with car finance, you’ll have to pay a settlement amount, so you own the car outright.
However, if you’ve paid for the car with a personal loan, you can sell the car whenever you wish. This is because the loan is separate from the car and the money isn’t secured on the vehicle. This could give you enough money to pay off the debt you owe.
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