Can I take a payment holiday on my car finance?

Roman Danaev

7 July 2022

If the initial loan from a financial company to buy a car doesn’t suit you, it doesn’t matter; you can always request refinancing from the same lender or another organization. However, financial difficulties can arise in any situation: both with an initial loan and after refinancing, because any debt means a certain level of risk.

A job change, sudden family expenses or something similar can cause difficulties with making a monthly payment. In such situations, the customer should think about solving the problem with the help of a special feature of most car finance deals, namely a car finance payment holiday. In the article, our experts will tell you what it is, how it works, who can get a payment freeze, and much more!

What is a car payment holiday?

To understand any issue, it’s worth starting with the basics. A car finance payment holiday is a special condition for repaying a loan whereby regular contributions are temporarily frozen (usually for a short term). This service can be provided by a finance provider; however, organizations usually offer different terms for payment deferral. It’s best to clarify the details before drawing up a contract.

The recommended freezing period is determined by the FCA —often, the lender offers a three-month payment holiday, but in critical situations, companies may present an extended period (as was the case during the covid pandemic).

How do car finance repayment holidays work?

When considering taking a car finance payment holiday, the client will have to complete several steps:

  1. Study the terms of the finance agreement and explore the information on the official website of the organization that issued the loan.
  2. Contact the manager of the car finance company and find out more about the freezing conditions. It is imperative to clarify the percentage of the interest rate in order to understand how much more you will end up paying overall when you enter the scheme for deferred payments.
  3. Request the service if the conditions suit you.

As a rule, the conditions for deferred payments depend on the organization itself and the credit rating of the client. If the customer regularly made car finance payments and correctly fulfilled all their obligations, then the company will probably offer the most favourable terms.

After discussing with the manager and processing the service, the consumer will start their payment holiday — they have the right not to make payments during the agreed period of time; however, the interest charge will most likely be accrued. That is, after the end of the delay, the client will need to pay the amount of the remaining debt plus interest under the terms of the contract.

Why should I consider a payment holiday?

Why should you even think about starting a car finance payment holiday? As a rule, people turn to their providers when they experience certain financial troubles related to:

  • Job loss due to the covid pandemic, the unstable economic situation or for other reasons;
  • Health problems of the client or members of their family that require them to allocate finance elsewhere;
  • A decrease in income to a level where car finance payments may affect the lifestyle of the debtor and their family.

That is, if the client simply allows missed payments one after another, then their credit score will critically fall over time, and it will be very difficult to make hire purchases in the future. Secondly, if you miss car finance payments for a certain period, you may risk having your car confiscated.

Who is eligible for a car finance payment holiday?

Despite the fact that the FCA issued some recommendations on the operations of car finance organizations, they didn’t make any strict or specific provisions. Thus, the payment holiday conditions are rather imprecise and may differ from provider to provider.

Thus, there are no specific categories of people who are guaranteed to receive a deferred payment. Therefore, it’s worth noting that if freezing and early termination are necessary, it’s best to immediately contact the organization that issued the loan and find out if you qualify for such a service.

Which finance options offer payment holidays?

The big advantage is that if a company offers car finance payment holidays, they are usually available to customers who have taken out any of the following types of loans:

However, it is still important to keep in mind that the terms of the financial agreement affect the terms of the deferment. And if you do not want to cover the additional extra cost, clarify the points regarding freezing at the stage of contract execution.

What will I need to provide before being approved for a car finance payment holiday?

Customers should understand that offering payment holidays is a kind of critical help from the company, so the provider will probably ask you for a lot of information in order to conduct a check and compile an accurate credit report. The debtor needs to be prepared to provide bank statements, proof of income and necessary outcome, all of which will allow the organization to assess the situation and decide whether it is safe to offer a freeze and extension of the payment period.

How long can you take car finance payments holidays for?

Most companies follow the recommendations of the FCA and offer a standard payment holiday period of up to 3 months — this minimizes the risks to the organization itself and gives enough time for the clients to sort out their financial problems. However, in the vastness of the British market, you can find different car finance lenders that offer a delay from 1 to 12 months.

Do payment holidays count as arrears?

It is still a loan, and for each month of the payment holiday, the client will need to pay a certain percentage. On the other hand, registration of a freeze on car finance will prevent late payment penalties and avoid large charges for debts. In addition, during the holidays, the client has the opportunity to get back on their feet in terms of income and, after the deferral period ends, repay the car loan faster.

What are the problems with taking a payment holiday?

You should not consider the car payment holiday as a solution to all your problems. Even a service that is beneficial to the client can have pitfalls — let's discuss the most common problems faced by people who take a payment extension.


As we discussed above, a payment holiday is not a gratuitous deferral of loan repayment. This is a service for which you will also have to pay. The difference is that one interest rate is charged for skipping payments and another for delaying them (usually much lower and more beneficial for the client).

The more months your “holiday” lasts, the more you will have to pay after it ends. On the other hand, the shorter the grace period, the more profitable the whole deal will be — you will not have to repay huge amounts due to monthly interest.

Monthly payments

If dealing with a loan as soon as possible is your dream, then a payment holiday is unlikely to help. The fact is that if the client takes, for example, a 6-month delay with the subsequent continuation of the repayment size, then the entire financial agreement will have to be extended for six months. If you want to keep the original term of the contract, then after the end of the delay, you will have to greatly increase the size of monthly contributions.

Running costs

And the third, most unpleasant problem is the running cost, which may arise due to the execution of the payment holiday service. When the customer extends the duration of the contract for 3 or 6 months, then there is a possibility that they will have to pay for some points that should not have burdened the driver when accepting the terms of the original financial agreement. For example, road tax, annual service, maintenance inspection, insurance, extended warranty, and so on. All of the above can easily add up for the debtor (you will have to pay at least a hundred pounds).

Do payment holidays affect my credit rating?

The fact you take a car finance payment holiday will be displayed in your credit history. However, the correct deposit of funds before the start of the freeze and the careful fulfilment of the terms of the contract during and after the end of the deferral will not affect the rating —the service will not affect your ability to borrow in the future.

What Happens After the Payment Holiday Ends?

If the customer decides to leave the original loan repayment period after the payment holiday is completed, then after the end of the grace period, they will have to pay the entire amount of the debt plus interest for the grace period over a shorter period.

For example, there was £5,000 left to be repaid over 10 months. The client took a delay of 3 months with 1% interest. Rough calculation: the customer has to pay £5,000 + £50 (5,000*1%) for 7 (10-3) months. Previously, the payment amount was £500 per month; now it has increased to £721 per month.

If the client renews the contract for a time equal to the grace period, then the repayments will not increase much.

For example, there was £5,000 left to be repaid over 10 months. The client took a delay of 3 months with 1% interest. The customer has to pay £5,000 + £50 (5,000*1%) for 10 months. Previously, the repayment amount was £500 per month; now, it has increased to £505 per month.

However, in both cases, the payment holidays generally end in the same way: the client just returns the monthly contributions to pay for the car.

Is there an alternative option?

If the idea of a car payment holiday doesn’t quite suit you, then you can discuss with the provider other options for more alternative finance management:

  1. The voluntary termination is optimal if the client has already paid 50% or more of the debt but understands that it’s impossible to pay for the purchase in the near future, even with the help of a delay.
  2. The balloon payment is optimal if the client has the opportunity to pay off the debt in one payment (you can resort to refinancing; however, this is not too different from a payment holiday: the essence is the same, but the conditions are different).

In general, there is always an alternative, but the conditions depend on the finance organization itself — communicate with the company and find out the details!

Will I be charged for taking a car finance payment holiday?

During the car finance payment holiday, the client is almost never charged for the service. On the other hand, an additional outlay will definitely occur after the end of the grace period. As indicated in the examples above, the remaining amount of the debt repayment + the interest for using the freezing service will be divided across the remaining months.

In addition, if you did not use the car finance holiday according to the terms of the contract, then this may appear in your credit history and worsen your prospects of taking a loan in the future — it will result in additional expenses due to an increased loan rate.

To Wrap It Up

So, let's sum it up — car finance holidays are a great opportunity to defer debt payments if the customer is faced with unexpected financial problems. The conditions for obtaining such a service depend on many factors, including the provider, the details of the finance arrangement and the credit rating of the user. You can never accurately determine the conditions without talking to a representative of the finance company.

That is why you should contact Carplus specialists if you are interested in deferred payments! The team of professionals is always ready to answer the client's questions, talk about the details, warn about the risks and offer the most favourable conditions. Contact them now!

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