In April 2020, the Financial Conduct Authority (FCA ) set out new rules for car finance lenders on how they should respond to customers who are affected by coronavirus. It followed the general “three-month payment breaks” approach used for other credit from mortgages to credit cards.
In July, the FCA these rules were extended to allow for a first or second payment break to be taken up until the end of October.
In November, after the second lockdown began, the FCA changed the rules so now you can have up to 6 months payment breaks in total and if you haven’t used up your 6-months, you can still start another break.
If you have already taken 2 three-month breaks, you can’t get another one. Read Can you afford your car finance now payment breaks are ending? for your options.
But many people won’t have had a break so far, or may only have had three months.
Perhaps you had a mortgage break and that was enough to allow you pay the car finance, but now you have used up your 6 months mortgage breaks, you can have a 6 month car finance break.
These payment break rules apply to personal motor finance:
- cars being bought on HP;
- this includes PCP finance where there is a balloon payment at the end of the agreement (often called PCP);
- car leasing (PCH).
They do not apply to HP credit for other sorts of goods or to business contracts.
The FCA says:
This guidance applies where customers are already experiencing or reasonably expect to experience temporary payment difficulties as a result of coronavirus
So it doesn’t have to be you that is directly affected, it could be anyone in your household if that is affecting your ability to make your car finance payments.
Contents
A payment deferral – interest is still charged
The FCA says that where a customer is experiencing coronavirus difficulties:
a firm should grant the customer a payment deferral for 3 months unless the firm determines (acting reasonably) that it is obviously not in the customer’s interests to do so.
This payment deferral for car finance is similar to help for mortgages and unsecured loans and credit cards. It is sometimes called a payment holiday or a payment break – these all mean the same as a deferral.
Interest is not stopped during this time, it continues to be added to your account.
Some details:
- lenders aren’t allowed to add a charge for providing this deferral;
- lenders can ask for a token £1 a month payment if their system will not allow them to accept zero.
How will the accrued interest be repaid?
You need to ask your lender what will happen at the end of the 3 month period when you can go back to normal payments.
The FCA does not set out rules here. Some options may include: paying the accrued interest with larger monthly payments; making additional payments at the end of the agreement or by extending the term.
This may mean changing the terms of your agreement. The FCA says lenders can’t take advantage of this in an unfair way. I hope this isn’t going to be a problem in practice!
If you aren’t sure about what you are being asked to agree to, or you think it is unaffordable, talk to National Debtline on 0808 808 4000.
Credit records won’t be affected, but …
When a payment deferral is agreed, this will not harm your credit record. It will not show as missed payments or a payment arrangement.
But when you apply for credit in future, lenders may be able to see that you have taken payment breaks. See Covid-19 – credit score protection, but will it be harder to get credit? which looks at how this can happen.
You shouldn’t let this stop you asking for a payment break if you need it. A break that *may* be noticed in future by a lender is better than missing payments which definitely will be noticed! And it is better than talking out more credit which will cause you even more problems.
If you want to keep the car, the payments were affordable before and you hope to be able to start them again in a few months, then a payment break is likely to be your best option.
Is your contract ending soon?
Talk to your lender! It may be possible to extend the contract if you want. If you don’t want to, then talk about arrangements to pick up the vehicle if this is a PCP or PCH contract.
If you intended to make the balloon payment at the end of a PCP contract to buy the car, then have a think about what the car’s secondhand value might now be. This is what Stuart Masson says at The Car Expert:
If you had been planning to pay off the balloon and keep the car, bear in mind that used car values have already taken a sharp fall and are likely to continue falling for a while. That means you are probably paying a lot more than the car is worth if you want to keep it. You may be able to hand the car back now and buy a similar car for less money once dealerships eventually re-open.
You need to ask for this help
The lenders aren’t giving everyone payment breaks, you have to tell them why you need one.
You can ask for this help now, even though the new rules haven’t yet come into force. Many lenders are already being helpful to customers who are asking for breaks.
It doesn’t have to be you who has been furloughed or had your self-employment income dry up or is at home looking after the children – it could be your partner or it could be another adult in the house that usually pay part of the bills so you are having to pay more.
If you are asked to provide some evidence, an email from your employer or your child’s school or from a Universal Credit application or a letter from your doctor saying you are advised to self-isolate for 12 weeks should be fine.
If you just stop making payments without asking your lender to agree, then your credit record will be harmed and if you get arrears your car may be repossessed.
Would Voluntary Termination be a better option?
If you don’t want the car any more or you don’t think you will be ok again in a few months, read Voluntary Termination (VT) – how to end your car finance early and think if that would be good for you.
And if you think the payments were always too high, read Were you sold a car on unaffordable finance? which looks at whether you can make an affordability complaint.
If you make an affordability complaint you have to keep paying while the complaint goes through, which can take a long while. So here it may be good to also ask for a coronavirus 3-month payment break as well as making an affordability complaint.
These can be complicated decisions. If you aren’t sure what you should do, talk to National Debtline on 0808 808 4000.
Comments are now closed on this article.
Please leave any comments or questions on the more recent article:
Can you afford your car finance now payment breaks are ending?
David Booth says
Any ideas what happens if you’re on a 0% PCP? Used Motordepot on their used car 0% PCP and have finance through Blackhorse
Sara (Debt Camel) says
Nothing is specified…
Can you afford to make up the rest of the payments over the remaining term?
Were you planning to pay the balloon payment at the end?
Linda says
That’s great thanks. Could I ask are all companies bound by this or can a company say no if requested?
Sara (Debt Camel) says
Which sort of debt/bill?
Linda says
It’s for my car monthly payment with Moneybarn.
Sara (Debt Camel) says
Then it’s not “optional”, the guidance – it’s here in full https://www.fca.org.uk/publications/guidance-consultations/motor-finance-coronavirus – applies to all personal car finance, ie not business contracts.
Moneybarn is a large lender and I don’t expect you will have any trouble if you contact them now and ask for a break, you don’t have to wait until the new guidance is final.
Linda says
Thanks Sara appreciate your help
R WHITE says
Hi Sara,
I sent an email to Blue Motor Finance asking for a 3 month payment break and they replied with the below – Am i better to wait until Friday when the FCA put the new rules in place or any other suggestions please?
Thank you in advance
In order for us to assist you further, please can you confirm the on the following information:
How has COVID-19 affected you?
What is your current employment situation? (Full time, part time, Self employed etc)
Are you aware if you are you eligible for the 80% Government wage funding?
Have you been furloughed? If so will you employer be paying the 20% gap?
Have you any information from your work to support the above? If so, please can you supply us with this?
If you are self employed and have applied for the Government assistance, please can you send us the confirmation email from HMRC?
If you have been off work unwell due to COVID-19 symptoms, do you have medical evidence to support this?
We will need supporting evidence in relation to how you have been affected to assess how we can assist your further.
Sara (Debt Camel) says
How have your finances been affected? One of the ways they have mentioned or something else?
R WHITE says
I have been verbally warned that i may get furloughed, and my income is the sole income for the household – so i want to be pro-active in getting my affairs in order. Trouble is im worried that maybe too wishy washy for them.
Sara (Debt Camel) says
I think you don’t need to take action while you are still being paid normally and haven’t had confirmation when this will stop.
A Parker says
Anyone else having problems with VW Financial Services? I’ve been trying since the 27th March to confirm a payment holiday and now they’ve registered arrears with the credit reference agency.
Sara (Debt Camel) says
Assuming you are asking for a payment break because of Coronavirus, go back to them and persist and say they need to correct your credit record too. Take your case to the Financial Ombudsman if it doesn’t get resolved.
A parker says
Thank you 😊
david d says
I have a query regards my HP car finance which I’m paying £281 per calendar month for, runs till may 2022. I’ve just made my latest payment which takes me over the 2 year repayment threshold which I believe entitles me to return the car for no penalty?
I haven’t considered this at all to be honest, because we need a car in the household, however with my partner currently out of work its making things tricky to keep up with everything. to confirm, she was not made redundant or affected by the pandemic, she is merely a victim of bad timing where the employer was not in a position to renew her Fixed term contract at the end of May 2020. she’s currently on JSA and we’ve just applied for UC.
My question is, if I did go down the route of returning the vehicle (its all in tip top condition, fully serviced etc and no damage since purchase) would this then affect my ability to obtain credit to get another vehicle on lower repayments to help affordability?
The HP is with Specialist Motor Finance and I’m 100% up to date with repayments, none missed etc, if that helps.
any advice truly appreciated.
Sara (Debt Camel) says
The point at which you can “voluntarily terminate” a car HP agree will be set out in the agreement – I suggest you dig out the paperwork and check this.
If you VT a car, it will not harm your credit record, you are just exercising your contractual right. That lender may decide they don’t want to lend to you again in future though.
This article looks at the practicalities of VTing a car: https://debtcamel.co.uk/vt-end-car-finance-early/.
I don’t know whether you would be able to get another vehicle more cheaply – has your credit record improved? Will you pass the affordability test with your partner not working?
But I think you would be entitled to a 3 month payment break if you need one on the car. Your household finances have been affected by coronavirus – your partner’s job ended and she has not yet found a new one.
david d says
Thank you for the prompt response.
I actually spoke to them last month to enquire about the corona virus help and they said because her contract merely ended coincidentally and it wasn’t stipulated in the contract that it ended as a direct cause of the pandemic that they couldn’t provide the 3 month break. We then briefly spoke about reduced payments but it seemed that this would affe t the account as it would have been marked as in arrears. Are you saying they can’t do that?
Sara (Debt Camel) says
Does your wife normally get a new job quickly when one ends?
David d says
She hasn’t been out of work for more than 12 years, spent 11 years in childcare, one job, then moved to a new job in Feb 2020 which was a temp job with a view to permanence but because of the timing, the office closing and requirements / workloads being reduced they couldn’t offer anything more.
Sara (Debt Camel) says
Then I think you can pushback and say she is out or work because of coronavirus so you are entitled to a three month payment break because of coronavirus.
That doesn’t mean this is a better option for you than VTing the car. Interest is added in a payments break so it doesn’t work out cheap. I am just saying it is another possibility.
I suggest you look more at the VT option and whether you really could get another car at a cheaper rate.
Also buying second hand cars is always a bit risky – if the current one is running well you may prefer to keep it if you can.
david d says
Apologies I forgot to add when I said to get a car on lower repayments, I meant to get a car that cost less with lower repayments to help with affordablity. My credit is likely the same as when I first got it in June 2018.
david d says
Would taking a payment break increase the repayments over the remaining length of the contract or would it extend the length by 3 months do you know please? I’m 100% eligible to VT now, I’ve checked and I’ve paid more than I borrowed too. I was initially querying whether performing a VT would be an alarm bell if I went about that then attempted to get a new car on HP again.
Sara (Debt Camel) says
“Would taking a payment break increase the repayments over the remaining length of the contract or would it extend the length by 3 months do you know please?”
That is up to each lender – from what I have heard most prefer to increase the payments and keep the contract length the same, but you can object if the large payments would be unaffordable.
“I was initially querying whether performing a VT would be an alarm bell if I went about that then attempted to get a new car on HP again.”
Performing a VT will not harm your credit record. The same lender may refuse to lend to you in future. Other lenders may be able to work out that you have VT’d a car by looking at your credit record in detail. BUt carsalesman basically want to sell cars… In general people seem to be able to get another car on finance afterwards without problems but I can’t guarantee you will.
david d says
I appreciate your prompt help and understanding as always. Many thanks.
Pelin says
Hi Sara;
My husband had bought a car in 2018. He had a well paid job then. He bought it for 48 months finance plus a balloon payment . In 2019, he had to change his job and our budget was affected by it. Now, with the Coronavirus paying for this car is an absolute struggle. We had to take 3 months break in summer and then carried on our monthly payments but we cannot afford it anymore. We contacted our lender Santander that we explained the situation. We said we had to give the car back. As we completed 2 years payment, we supposed to have a right for it. They told that we had to pay around £ 7000 to just leave the car excluding excess mileages. Honestly, to pay this month’s payment, we had to cut our household expenses as we have a 3 years old and Myself is not working at the moment, life is already tough.
Now , We need your advise. I read that there is going to be help for finances starting from 2 October. I mean we just want to give the car back without anymoney. Is it possible now? Is my husband’s credit score gonna be affected by it? We never ever missed any payments but we are missing sleeps because of it now.
Thank you
Sara (Debt Camel) says
I read that there is going to be help for finances starting from 2 October
I don’t know what this is. the regulator has announced this week that lenders do not have to give more payment breaks for loans, credit cards or car finance.
You can still take 1 more 3 month car finance payment break of it starts before the end of October. If you knew your husban would be fine in a month or two that might be a good idea, but if you know already this won’t be affordable for you there may be little point.
You can choose to “voluntarily terminate” your car finance at any time – this is called VTing the car. I have looked at this in detail here: https://debtcamel.co.uk/vt-end-car-finance-early/.
Briefly:
– If you have paid over 50% of the total contract value, including the ballon payment at the end, you don’t have to pay any more.
– But if you took out a PCP contract in 2018 then you will not yet be at the 50% point. You can still VT the car but you will be left with the rest of the 50% amount still to pay. This may be the £7000 you have been quoted – you can ask the lender to explain how they have calculated this and you can talk to National Debtline on 0808 808 4000 if you are not sure the lender’s calculations are right.
VTing the car and being left owing money may be your best option now. If you aren’t half way through, then there isn’t an option that will let you hnad back the car and pay nothing. If you cannot afford to carry on making the repayments, it is usually better to VT the car than to get into arrears and for the lender to repossess your car – then you would owe all the rest of the payments, less whatever the lender sold the carat auction for, which may not be a lot.
BUT
What are the rest of your finances like? Do have debts on credit cards or other loans? Overdrafts? Do you owe any priority debts such as mortgage/rent, council tax or utilities? Do you expect your husband’s income to improve or get worse over the next 6 months?