The cost of living in the UK has increased dramatically in the past few months. More people than ever have decided to lease or finance a car in the past year also, so with this in mind, what should you do if you are struggling to keep up with your car finance payments? When you first sign up for a car finance deal, you will agree to meet every payment on time and in full. However, we all know that sometimes life can be unexpected and if you find yourself with a loss of income or earnings, it can be frustrating. There are a number of steps you should take if you are struggling to meet your car finance payment deadlines.
Why is it important to pay on time?
There are a number of reasons why meeting your car finance payments is important. Firstly, car finance is a legal agreement that you will sign and agree to stick to the terms of the agreement. Missing even one car finance payment or making a late repayment can have a detrimental effect to your financial life and put the vehicle at risk of being repossessed. Many finance agreements, such as PCP or hire purchase, are a secured loan which means the finance is secured to the vehicle that you choose. This means that failing to pay gives the lender the right to take the car away from you. Some lenders can require you to pay a fee if you a miss a payment which can make your debts worse if you are already struggling to repay. Missed or late repayments can also lead to defaults or Country Court Judgements which will stay on your credit report for up to 6 years, can seriously impact your ability to get finance in the future and decrease your credit score too.
What if you can’t afford to pay for your finance deal?
It can be hard to save money on a budget and there are a number of reasons why you may find yourself struggling to keep up with payments. If you’ve recently lost your job, it can be possible to get car finance on benefits but some lenders do require proof of income which may take some time to sort. So, if you find yourself in a position where your income has changed or your other financial commitments are taking over, you may be wondering what your options are. One of the first things you should do is to speak to your lender first before you take any action. Let’s take a look below at the steps you should take if you can meet your car repayments.
Speak to your lender
The first thing you should do if you think you can’t meet a car finance payment on time is to speak to your lender. The lender is the one who agreed to borrow you the money. If you’ve taken out finance through a broker, you will need to contact the lender as the broker does not directly lender money out. Depending on how far you are through your finance agreement and the terms of the contract, your lender will be able to help you with the next steps available to you. This could be in the form of a payment holiday, reduced payment amount or a refinance deal.
Cancelling a car finance agreement early
In some cases, there are options to cancel your car finance agreement before the end date. It’s generally easier to cancel your agreement if you are closer to the agreement end date through voluntary termination. However, you can choose to cancel at any time. When you are halfway through your agreement, you can choose to cancel the agreement and hand the car back at any point without having to pay anything else. However, the car will need to go back in good condition and within the agreed milage limit if you set one. If you have not yet paid off 50% of your car finance deal, you will need to pay the difference with a one-off payment before you can return the car. Depending on the type of car finance deal you have, the halfway point of your agreement can vary so it’s worth checking out first.
Refinance your current deal
If you have a car on finance which you can’t afford to pay back, you could consider refinancing your car loan. Its best to wait till at least halfway through your car finance agreement before you try to refinance as you may not have paid enough back yet. Refinancing is when you replace your current car loan with another loan, usually with better terms and then pay it back till the end of the term. Refinancing can be a good way to lower your monthly payments and if you’ve improved your credit score in this time, you can benefit from a lower rate too. If you’re coming to the end of a PCP deal and want to keep the car but can’t afford to make the final payments, you could also consider refinancing PCP balloon payment so you can keep driving the car you love.
Ask for a payment holiday
Payment holidays can be a little tricky and may be the last repost for many people. However, asking if your lender would consider giving you a payment holiday is an option. Payment holidays were very popular during the pandemic when many people struggled to meet their deadlines due to not being able to work, being made redundant and having to stay at home. A payment holiday is when you take a break from meeting your repayments for an agreed period but once this has ended, you will then need to resume the payment schedule.
