Can you afford your monthly car payments?
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Or your other bills may have gone up a lot. Petrol, energy bills, council tax, food…
Contents
What sort of car finance do you have?
You need to know what wort of car finance you have:
- the most common types are Hire Purchase contract (HP) or and Personal Contract Purchase (PCP);
- you may have a lease, where you aren’t buying the car at all. These may be called contract hire or Personal Contract Hire (PCH);
- you may have an unsecured loan, perhaps from your bank. This isn’t “car finance” at all – here you own the car and the loan is just a normal loan, not a priority debt.
- you may have a business contract. This article doesn’t cover these. See Covid: ‘I don’t want them to take my cab’ for an example of a business debt and 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.
Some lenders may help…
What you could be offered will depend on your situation.
Lenders can agree to:
- stopping charging interest, or reducing it;
- allowing you to make 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 my not by sympathetic.
You will have to talk to your lender, but before you pick up the phone it’s good to be clear on your options.
What you need to think about
Get a detailed budget
It’s important you work out how much you can realistically pay to the car finance. Don’t panic and offer more than will be manageable, because you will just have to phone them up in a month and ask to pay less.
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.
And make sure you are claiming all the benefits you can. Try this benefits calculator and talk to your local Citizens Advice for help with this.
Can you afford the payments if you don’t pay other debts?
Car finance is a “priority debt” because the lender can repossess the car.
(One exception – if you took out a loan and used that to buy a car, this isn’t “car finance”. You own the car and it can’t be taken. This loan is just like any other unsecured loan and it isn’t a priority debt.)
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 linked to 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 nf 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.
It’s usually better to terminate car finance (VT) than have a car repossessed
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. Even if you want to keep the car, you should know about this in case there is no alternative as it may save you a lot of money.
If you are leasing your car, you usually don’t have the right to end the lease early. Talk a debt adviser if you aren’t sure what type of finance you have.
As a quick overview:
- your HP or PCP agreement will say what “half the amount” payable under the agreement is;
- if you have 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.
If a lender repossesses your car – or if 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. 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 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 may 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. See How to terminate your car finance early, which looks 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 won’t just save on the car finance – the petrol, servicing, car tax and insurance costs also mount up.
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.
Talk to the lender about the help you need
You have three main options:
- pay less to your non-priority debts so you can pay the car finance in full;
- decide to terminate the finance contract and hand back the car;
- ask your lender to accept lower payments, or even nothing, for a few months.
If (1) or (2) aren’t going to work then (3) is your only option. However stressful this is, it is better to ask the lender for help rather than assume you can’t get any, stop paying and have the car repossessed.
You need to talk to the lender about your situation, how likely it is to change and what you can afford to pay them each month.
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…
The lender may have thousands of borrowers in your situation.
Repossessing a car is a hassle and an expense. If a lot of cars have to be sold then prices will drop, so the lenders will end up with less.
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.
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.
Your lender should tell you about your right to terminate the contract
When you talk to your lender, if you say you can’t pay the normal amounts, then the new FCA rules say:
Where it may be in a customer’s interests to exercise their right to terminate a hire purchase or conditional sale agreement under section 99 or section 100 of the Consumer Credit Act 1974, a firm should inform the customer in good time of that right, providing information in a way that is clear, fair and not misleading to help on the customer decide how to proceed.
Now if your normal payments would be £350 a month and you have offered £300 and the lender agrees to accept that and not default you, then the lender probably doesn’t have to mention that you could terminate the contract.
But if you can pay very little, or if the lender says what you are offering is not acceptable and they may default you, then they should explain that you can terminate the contract. They may not use the term Voluntarily Terminate (VT) but this is what it means.
If they say you can’t VT the car as you have arrears or haven’t paid half, this is simply wrong – all HP and PCP car finance contracts can be terminated, even if you haven’t paid half or if you have arrears.
The lender may make it sound as though this is some small print they are obliged to tell you that you won’t want to do. But remember that VTing is normally better for the borrower than having the car repossessed.
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.
See Were you sold a car on unaffordable finance? that looks at this. You can make this sort of complaint while you are still paying the finance or if the car has been handed back or repossessed. You may get back the interest you have paid.
But the complaints aren’t fast 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 won’t normally solve your immediate problem.
Unsure? Get help from a debt adviser
Priority debts can be very hard to deal with. Often there are no easy options but there is support available from debt advisers who can explain the pros and cons and help you choose.
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.
And if you aren’t sure what the lender is saying, or you would just like to see it in print, ask the lender to email you with the details. Then you have some time to think about it and talk to a debt adviser.
Struggling to pay your mortgage?
How to end your car finance early
When to offer a token £1 to a debt
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?