Can you afford your monthly car payments?
You may have lost your job or be worried that may happen. You or your partner may have had their hours cut. Or your business may be making less money.
Or your other bills may have gone up a lot. Mortgage, rent, petrol, energy bills, council tax, food…
Contents
What sort of car finance do you have?
This article looks at your options if you have a Hire Purchase contract (HP) or Personal Contract Purchase (PCP). These are the two most common types of car finance in the UK.
Other types include:
- a lease, where you aren’t buying the car at all. This may be called contract hire or Personal Contract Hire (PCH). The VT and Time Order sections discussed on this page do not apply to leases.
- an unsecured loan, perhaps from your bank. Here you own the car and the loan is just a normal loan, not a priority debt. This page isn’t relevant because your car is not at risk even if you stop paying the loan;
- a business contract. This article doesn’t cover these. Talk to Business Debtline for advice on this.
If you aren’t sure, talk to a debt adviser as it makes a big difference to the options that you have.
First get a detailed budget
It’s important you work out how much you can realistically pay to the car finance.
Use this budget sheet from National Debtline, It can help you understand your overall financial position. And you can also show it to your lender.
You may not be sure about some numbers, especially if you are waiting for benefits to be paid or you don’t get paid the same amount each month, but this is still helpful.
Can you improve this budget? Make sure you are claiming all the benefits you can. There are millions of people who are sure they aren’t eligible for Pension Credit, Universal Credit or Council Tax Support but who actually are…
Try this benefits calculator and talk to your local Citizens Advice if you want help to claim any you aren’t getting at the moment.
Once you have this budget, you have 4 options about the car finance:
1) stop paying other debts to pay more to the car finance
Car finance is a “priority debt” because the lender can repossess the car.
With a priority debt, the lender will expect you to pay them instead of paying you non-priority debts such as credit cards, normal loans and catalogues. See What are priority debts and bills? for details.
So if paying little or nothing to your credit cards will let you pay your normal car finance, you have to do this in order to keep the car.
Here you don’t need to talk to your car finance lender because you can pay them.
Instead, talk to your non-priority lenders and ask them to accept lower payments, or even a £1 a month token payment, and to freeze the interest and charges:
- non-priority lenders will understand that you can’t pay them because car finance is a priority debt;
- this will affect your credit score, but if you can’t afford the normal payments, there is no way around this.
The budget sheet above will show what you can afford to offer to non-priority debts.
If you aren’t sure if this is necessary or what to do, talk to National Debtline.
When you have a lot of creditors, it may be easier to get a Debt Management Plan set up with Stepchange – there they talk to all your non-priority creditors for you.
Importantly in 2023, if you have a mortgage fix ending, with the large majority of mortgage lenders you do not have to worry about a poor credit record if you only want a new fix, as your current mortgage lender in most cases won’t check your credit record of affordability.
2) Voluntary Termination (VT)
If you have a Hire Purchase contract (HP) or and Personal Contract Purchase (PCP) you need to know about your right to Voluntarily Terminate (VT) car finance. This does not apply to lease contracts.
It’s usually better to voluntarily terminate your car finance and hand back the car than have a car repossessed because you will owe a lot less, possibly no, money.
An overview of Voluntary Termination
When you VT a car, you hand back the keys and only have to pay “half the amount” payable under the agreement – this number is given in your HP or PCP agreement paperwork – dig it out and have a look. So:
- if you have already paid more than half you can hand the car back and not owe any more money (unless you have arrears, which you will still owe);
- if you have paid less than half you can still hand the car back now and only owe the remainder of this amount. This is then just a debt to be repaid, not a priority.
An example:
Say “half the amount” is £8,000. If you have paid 20 payments of 300, that is £6,000. If you VT the car you would still owe £2,000.
If a lender repossesses your car or you hand back the keys and don’t say you want to VT it, then you would owe the total remaining on the contract minus what the dealer can sell it for at auction. That is often a lot more than if you terminate the finance.
Using the same above VT example:
If your car is repossessed, you would owe the full amount of £16,000 minus what the car would be sold for at auction. If it is only £10,000 you would end up still owing £6,000.
If you are going to lose the car anyway, you should try to end up owing as little as possible!
If you aren’t sure about the numbers for your car, talk to National Debtline on 0808 808 4000.
You can’t terminate the contract yourself if it has already been terminated by the dealer. So if you are sent a Default Notice, you have to decide very fast whether to VT your contact – because after 14 days you may lose the right to do this.
This is just a brief summary. How to terminate your car finance early looks in detail at how to VT a car, its condition, mileage payments and other important details.
Can you manage without the car?
Unless you are sure your financial problems will be over soon, think about life without the car:
- in a two-car household, manage with just one;
- look at options for public transport, cycling, car-sharing, or car rental;
- if you can now work from home some or all of the time, how much less do you need a car.
Facing a financial crisis, you may have to put up with some inconvenience. Getting rid of a car will also save on petrol, MOT & servicing, car tax, insurance and parking costs.
Obviously, if you are close to the end of a HP contract, you don’t want to hand it back as you are close to owning it.
But early in a HP contract, or in a PCP contract where you will never be able to own the car, you should seriously consider terminating the car finance if you have big money problems and you think this is going to last a long while.
If you think it’s likely you will have to lose the car in a few months, it may be less stressful to do it now and have more money to pay to your rent or mortgage.
3) Apply to the court for a Time Order
This is not an easy option. Time Orders are unusual.
National Debtline has a good factsheet on Time Orders. It says:
You may be able to use a time order to reschedule the payments on your agreement. A time order and an order to change the interest rate may be a good option if you have fallen behind with your payments. You may be able to stop the creditor repossessing your goods.
You can apply for a time order if you have been sent an arrears notice, a default notice or the lender has already started repossession proceedings. You can’t apply if you currently up to date with payments.
You have to start a court case and you may have to argue it before a district judge who has never seen an application for a Time Order before. If you lose, extra costs may be added to your debt.
4) Talk to the car finance lender about lower payments
Lenders could agree to reduced payments, a small token payment or even no payments for a period.
But with car finance, if you don’t make the normal payments then your car is at risk – the lender may repossess it.
So will lenders agree to accept less? Many car finance lenders may not be sympathetic. Before you pick up the phone it’s good to be clear on your budget and what your other options are.
Don’t panic and offer more than will be manageable, because you will just have to phone them up in a month or two and ask to pay even less.
Showing your lender your budget sheet can make this conversation easier. It will prove to your lender that you aren’t paying non-priority debts. And that you are offering as much as is realistic.
It may not be as hard as you think…
A lot of people have major financial problems in 2023. Repossessing a car is a hassle and an expense.
So it is possible the lender may prefer to accept a lower payment for a few months in the hope that your situation will later improve.
Especially if you are offering £200 a month when the actual agreement is for £260, so it’s not much less. Or if there is a good reason why your situation will improve in a few months.
Credit records
Arrangements with your lender will be shown on your credit record.
There isn’t a way around this. It is better to have a “payment arrangement” marker on your record than for it to just show that you have missed payments.
One exception – if you have paid more than half the payments, then you can VT your car and it will not affect your credit record at all. But apart from this, there is always going to be some negative effect on your credit score.
Was the car finance always unaffordable?
You may have heard that you can make an affordability complaint about car finance. Quite a lot of these are being won, especially if the interest rate was high.
Were you sold a car on unaffordable finance? looks at this. You can make this sort of complaint in any of the following situations:
- you are still paying the finance;
- the car has been voluntarily terminated, handed back or repossessed;
- you have finished paying the finance and now own the car.
But these complaints aren’t speedy and you have to keep on paying the car finance while they go through. They are often rejected by the lender so they have to go to the Ombudsman.
So if you can’t pay the car finance at the moment, making an affordability complaint doesn’t solve your immediate problem. You still have to choose one of the options discussed in this article and also make an affordability complaint.
Unsure? Get help from a debt adviser
If you need help, talk to National Debtline on 0808 808 4000.
They can help you get a budget so you know what to offer the car finance lender and your other debts. Knowing more about your different options may make things clearer.
Can’t pay your bills & debts?
How to end your car finance early
Get a car finance commission refund?
Graham O'Malley says
Hi Sara,
Great advice as ever – one issue we struggle with when writing content/articles is picking the right phrase to use for these agreements, and car finance is as good as it gets, but it encompasses a fair bit. I doubt there are many, but if there is an unsecured loan to buy a car (so not PCP / HP), then the car isn’t then at risk, and the debt isn’t a priority (and no right to VT etc). I know you know, but for readers. If in doubt, ask, or check your agreement to see what type you have.
I won’t start on bills of sale, other than if you’re struggling and have one, the FCA guidance still applies. Your rights rights are fewer and the creditor’s rights are stronger, so get debt advice as soon as you can, and before the creditor terminates the loan if poss.
Graham
Sara (Debt Camel) says
Thanks Graham. I have tried to clarify…
Dean Mahoy says
HI Sara
Great advice Just wondering if a client applies for a DRO and has paid over half of the HP agreement would the finance company still have the right to repossess the car.
Sara (Debt Camel) says
Hi Dean,
you would need to check your client’s paperwork. There often is a clause allowing car finance to be terminated on insolvency but not all lenders will do this even if the clause is there. I am not sure that having paid over half makes a difference.
Stephen Prince says
Does this include car finance please?
I had 3 months defferal initially and have had 3 months of making partial payments also.
Am i allowed any further help as my hours have been reduced until the end of the year now as a result of the coronavirus pandemic.
My employer has stated they hope to be able to increase them when the company returns on the 11th January 2021 after the works Christmas and new year shutdown(which happens every year).
Thank you
Sara (Debt Camel) says
Yes it applies to car finance BUT it sounds as though you have had your 6 months of deferrals, as making reduced payments counts as a deferral.
Read the article above for your options
Kaylie says
Hi sara,
I have 7 items with bright house over a period of 3 years i moved into a new property almost 2 years ago after a split with partner i have struggled to keep up with payments of £240 a month. Since October 2019 i have had a rewrite on some of the products which put it down to £160 a month. I am really struggling to keep ontop of my bills aswell as pay the £40 a week. They are aware i am struggling and suggest i send the items back i feel is unfair as they are essential. I am a single parent on benefits unable to work for now. What would you suggest i do?
Sara (Debt Camel) says
I suggest you read https://debtcamel.co.uk/brighthouse-administration/ and think about sending BrightHouse an affordability complaint and stopping paying them.
They are not very easy to deal with. They are trying to bluff you into carrying on paying them – they don’t really want your second hand items back.
Sally says
My car company are refusing to let me vt. Apparently I got served a default notice for missing two monthly payments, but I paid both months in the second month and the month hasn’t elapsed. The notice was served the day after the dd was due.(it was due to be paid on the 2nd of the month the notice was served on the 3rd) No grace period was given, (the reason for missing the payments was I had to repair the car for the second time in a year, I had to put a new engine in it so I simply couldn’t afford this straight away) I didn’t pay the two months until 3 days after the 14 days default was served and they are refusing to take this into account. Any advice? Cause I’m sure v-ting car is better then surrender? Thank you.
Sara (Debt Camel) says
That sounds like you may be able to challenge it – talk to National Debtline urgently (https://www.nationaldebtline.org/ they are open Saturday morning)
SARAH H says
Hi ive had 6 months payment break from Moneybarn
But now they did a income and expenditure form with me and are saying that they can’t offer me any reduced payments. Because I have enough disposable income to pay off the arrears from the payment break.
The normal monthly payment is £241 and they asking me to pay on top £150 to bring the arrears down. I offered £100 but they said they would only accept £150. They had already issued a sums default to repose the car 30th March. So I had no choice but to accept Because u need a vehicle for my daughter as I’m an unpaid carer. My husband is now out of work because of Codvid. Which means we are both on universal credit and benefits.
Is there anything I can do to challenge this, or are the allowed to demand so much a month.
Thank you any advice in advance
Sarah H
Sara (Debt Camel) says
That sounds like a lot.
I suggest you talk to National Debtline on 0808 808 4000 who will go through your income & expenditure with you. I am surprised that you would have enough to be able to afford that much. If the National Debtline I&E is different it may give you a good bargaining chip to go back to Moneybarn with.
Sarah H says
Hi they were really sly too as I offered to pay £100 and they were really keen to get the £100 paid then told me I had to to make another payment of £241 by the 30th March. I was hoping to start by the end of April. I made a payment of £100 in January.
My worry is I need my vehicle 😕😩
Sara (Debt Camel) says
yes, very stressful. They know how much pressure you are under. But they don’t really want to repossess the car if they can reach an OKm agreement, so do talk to National Debtline on 0808 808 4000
Sarah H says
Thank you the person did say to ring then but they would still take the car if we didn’t get a payment plan in place. :( I’ll give them a ring
Oliver says
Hi I have had a Audi through financed vwfs for years. When we were ordered to close in feb/March 20 due to Covid I contacted Audi to request a payment holiday. They asked me to call vwfs. Which I did. Unfortunately my mother had just passed away and I was closing my business due to the pandemic. The next I knew in July I received a email from a debt collection agency wanting to repossess my car. I immediately called vwfs to rectify the situation. At this point I offered to pay the arrears in full as they said I had not asked for the payment holiday and I had defaulted 3 payments. They said they had written to home address however this was wrong and I had in fact moved. I asked why they did not email me like the debt collection agency had and they responded by saying they simply didn’t have to. I have never been in debt nor defaulted on anything before and nor did I believe I had this time. Vwfs would not take any payment for it and said that they could not help and for me to deal with the debt collection agency. I then raised a complaint which took them 6 months to address. I spent hours on the phone multiple times trying to to get through to anyone to no avail. In which time the car had depreciated substantially. I have now paid the car in full, 27k, but they have put a fault in my credit file which is now preventing me from getting another mortgage and or any credit at all.Can you offer any solutions?
Weatherman says
Hi Oliver
I’m assuming here that the contract with VWFS was a ‘consumer’ contract, not between VWFS and your business. If the agreement was with your business not you individually, contact Business Debtline, as the below might not apply: https://www.businessdebtline.org/
Had you told VWFS that you had moved? And did you request the payment holiday through their online form, or just over the phone?
Either way, you can complain in writing to VWFS, and if they don’t respond in 8 weeks or they reject your complaint, escalate it to the Financial Ombudsman Service. Your case will be stronger if you’d told them you’d moved (but they used the wrong address). Unfortunately they’re correct that they don’t have to email you. It will also be stronger if you requested the payment holiday in writing, although they might still have a recording of your call – if it goes to the Financial Ombudsman Service, they will ask VWFS to provide any relevant records.
Oliver says
Thank you.
Yes it was personal. And unfortunately I had informed Audi of my change of address but not vwfs. I had requested a payment holiday by phone not in writing. I raised a complaint but which took them 6 months to address, In which time the car deprecated. To no avail. So I have now raised it with the fos in dec but still waiting to be assigned a case leader. I’m trying to get a mortgage and being rejected. My credit score is 999 and have never been in debt I’m my life. It’s now affecting my mental health.
Sara (Debt Camel) says
You can ask Audi for a recording of your phone call – if they didnt tell you you had to call VWFS that helps your case.
I am not sure why the fact the car has depreciated in value is relevant?
Oliver says
Well I would of sold the car straight away as soon as I found out but there complaints process took 6 months in which the car has depreciated substantially. Also currently they have added the credit fault from dec due to them to dealing with it for an extending period. If they had dealt with it in July when I raised the complaint I would be nearly 1 year into this awful credit situation. I have a history of never defaulting and having an excellent credit score. I have my own business and now due to this mistake during a world pandemic and my mother passing they potentially have ruined my life for 6 years.
Sue says
Hello,
Had a decision from adjudicator that my car finance was affordable. In the 6 months prior to the car finance my average income to debt ratio was 64%. The car finance took it to over 80% debt alone! My SAR shows they don’t have a income/expenditure form coz I wasn’t asked. just my income. Adjudicator and they went on my credit record (which was ok as I was juggling all the debts around). The finance I initially was offered wasn’t the APR the next day , it was much higher and I believe that was because of me being “increased risk” also beleive the salesman was on a commission too tbh. Is it worth taking forward in your experience?
Sara (Debt Camel) says
If you think this was a wrong decision, then you should ask for it to be looked at by an Ombudsman. And set out in writing why you think it was wrong and ask for it to be passed to the Ombudsman who picks up the case.
Helen Ross says
Hello Sara
Is it possible to take an affordabiity complaint out on a car dealer/finance company ?
Sara (Debt Camel) says
Yes. Read https://debtcamel.co.uk/unaffordable-car-finance/ as there are other alternatives for car finance affordability complaints if you still have the car. Use the template on https://debtcamel.co.uk/refunds-large-high-cost-loans/ to make an affordability complaint.
Helen Ross says
Thankyou for your reply.
christian hill says
Hi, I have car finance with Zopa, recently I had missed 3 payments due to ill health and no sick pay from work, I sent them a letter explaining the situation but got no reply, I recieved a text message yesterday saying “Your Zopa hire purchase agreement will be terminated imminently. To avoid this, call us immediately”, I phoned them within 5 minutes and they said “sorry it has now defaulted and there is nothing we can do about it, we will be repossessing your car selling it at auction and you will have to pay the difference”.
I had no notice of this being defaulted and had assumed they took my situation into consideration after the letter I sent.
Is there anything I can do to stop this action being taken…..
Sara (Debt Camel) says
You need advice urgently.
Read https://nationaldebtline.org/fact-sheet-library/hire-purchase-debt-ew/ and then talk to National Debtline on 0808 808 4000.
Clare says
Hello, had the Adjudicator come back with saying I could afford my car loan and that I signed the agreement stating this and I never sent copies of bank statements showing I was in agreements with all my payday loans paying back a percentage a month! Also had an overdraft of 2k. I have emailed back stating that it’s taken him 8 weeks to come to the conclusion what Moneybarn had said and why hadn’t he looked at the bank statements and emails stating I was contributing to the mortgage, food and bills. I was also in payment arrangements with Moneybarn but they never told him that. This definitely needs to go to an Ombudsman doesn’t it?
Sara (Debt Camel) says
so you have sent FOS the bank statements showing payments to payday lenders etc?
Nesta says
Hi,
Does anyone know of any firms offering car refinancing as an option? My current interest rate is very high, but my credit rating has improved considerably over the last 18 months and I believe i can get a better rate.
I just can’t seem to find many options for car refinance.
Sara (Debt Camel) says
One option is just to get a cheap loan to settle the current car finance.
David says
Hello. I signed a new HP on Saturday 4th July 2024 but have changed my mind about the vehicle. It is not suitable, smaller and despite being newer does not run as nice as my old vehicle (which i still have). Do I have a 14 day cooling off period? Terms look quite hazy. Can you give me some advice on how to handle please?
Sara (Debt Camel) says
Did you buy this online without seeing it?
David says
Yes. Only test drove the car upon collection and key handover. All finance and documents signed electronically before collection date, barring a deposit and invoice which I signed for on the day. I’m confused as if I contact the finance company to activate the cancellation within the cooling off period do I also need to separately contact the dealer where I picked the car up from too? I’m happy to pay the daily rate otherwise which is about £10 a day
Sara (Debt Camel) says
You have two separate contracts here. One to buy the car and one to take out finance.
You can cancel the finance within 14 days but unless you can also cancel the car purchase, you have to find another way to pay the dealer. This can be useful if you find a cheaper bank loan for example. But this doesnt sort out your problem if you do not want the car.
As you did not buy the car in a dealership, you may be able to cancel the purchase. See https://www.citizensadvice.org.uk/consumer/changed-your-mind/cancel-something-being-paid-for-on-hire-purchase/. That article gives details for the Consumer Helpline – I strongly suggest you do this as soon as possible.
David says
Thank you. Do I have to be careful what wording I use when I contact them please? Or just mention I’m in my cooling off period?
Sara (Debt Camel) says
Talk to the Consumer Helpline. They are the experts. this is a consumer problem not a debt problem.
Dave says
Hello. This case continues to cause issues. I’ve established there is a mileage discrepancy on the vehicle on gov MOT records. The dealership knew about it, but the finance company did not. I have tried to remedy the discrepancy but the mot garages won’t provide me any details because I didn’t own the vehicle at the time of mot. The discrepancy is almost 20k miles. I’ve contested this but the finance company is saying they have done nothing wrong. Can I escalate to the FOS?
Sara (Debt Camel) says
what do you want to happen to remedy this?
Dave says
At this stage I’m just trying to establish if this is misselling or not. I’ve been unable to ascertain this via consumers advice etc
Sara (Debt Camel) says
I don’t have any experience of this
Adam says
Hi, I’m in the process of VT’ing my car. I am under the 50% and the lender has said if I dont pay the sum owed to get to 50% in full within 30d of returning the vehicle it’ll be recorded as a default on my credit report – is that right? The remainder is ten times the monthly agreement so I am not sure what they’d record as a default.
Sara (Debt Camel) says
This is a debt and you can make an arrangement to repay it, but as you have just lost your job, presumably you can’t?
What is the rest of your financial situation like – there is loan you have made an affordability complaint about, what else?
Adam says
It’s the arrangement to pay bit I’m stuck with – if I don’t pay it in full it’s a default?
I’d assumed that if I continue with a schedule the same as the original debt for example and if I miss one there then I understand getting a default. I guess I just didn’t realise or anticipate the paying in full as the next payment.
Everything else I’m ok with to be honest – I’ve learnt a lot from your site so thank you!
Sara (Debt Camel) says
Talk to National Debtline on 0808 808 4000 about the default and can you carry on with the normal payments – people normally cant make those which is why they needed to VT