Can I take a payment holiday on my car finance?

Roman Danaev

23 May 2025

What is a car payment holiday?

A car payment holiday allows you to pause your monthly car finance payments for a short period. This is usually for around 3 months and must be agreed with your lender. It's useful if you’re struggling to make payments due to financial difficulties.

Even though you’re not making payments, you’ll still need to pay the deferred amount later. It may affect your credit score. While it might not show as a missed payment on your credit report, it could still impact your credit rating.

If you're facing issues like job loss or unexpected bills, you can ask your lender for a payment holiday. They may grant you this break, but your payment schedule might change afterward. It’s important to speak to your lender to understand how the terms will change.

How do car finance repayment holidays work?

You’ll need to follow a few steps to set up a car payment holiday:

Check your car finance agreement. Make sure it allows a payment deferral. Some lenders don’t offer this option, so always read the terms first.
Visit your lender’s website. Look up the details and rules for a car finance payment holiday. Each lender sets different terms for payment breaks.
Contact your lender directly. Ask how it will affect your loan. Find out if the lender will charge extra interest or fees. Ask how much you’ll end up paying overall.
Decide if the terms work for you. Think about the total cost. Will you be able to pay the amount later? Will higher payments fit your budget after the holiday period ends?
Apply. If you agree to the terms, ask your lender to approve the break.

Your lender will decide based on your agreement and credit history. If you’ve kept up with payments so far, you’re more likely to get better terms. And once they approve it, you can stop paying for the agreed time. But interest will keep adding up, so you’ll need to pay it later along with the rest of your loan.

Why should I consider a payment holiday?

You should think about a payment holiday if you're struggling with money. It’s an option when life throws something unexpected your way.

Job loss, whether due to the pandemic, economic shifts, or other reasons.
Health issues, either for yourself or a family member, that force you to allocate funds elsewhere.
A decrease in income, making it harder to keep up with car payments without affecting your lifestyle.

Maybe you’re supporting a family member. Or juggling extra bills. A payment holiday gives you breathing space. It lets you pause your car payments for a short time.

Skipping payments doesn’t mean the debt disappears. Interest keeps adding up in the background. Later, your monthly payments might go up—or your loan might take longer to pay off.

Who is eligible for a car finance payment holiday?

The FCA provides general guidelines, but each lender has its own criteria for a payment holiday. So, even if you're struggling to pay, you may not automatically qualify for a payment holiday.

To find out if you're eligible, talk to your lender. They can grant you a payment holiday, but you’ll need to act quickly if you can't pay your regular payment. Keep in mind that taking a payment holiday could affect your credit score and appear on your credit report.

Which finance options offer payment holidays?

Car finance payment holidays are often available with various finance options, including:

Hire purchase (HP)
Personal contract purchase (PCP)
Personal bank loan

But, the terms can vary. The type of car finance you have will affect whether a payment holiday is possible. It’s important to check the details of the contract. Some lenders might be able to offer a break, but this could come with extra costs, such as higher monthly payments after the holiday period.

And also bear in mind that the payment holiday will usually show up on your credit report and could impact your credit score, especially if terms are not followed or payments aren’t made on time. Make sure to find out the details before agreeing to the terms for payment.

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

You’ll need to show proof of your financial situation before applying for a payment holiday. Most lenders will ask for recent bank statements, payslips, or proof of income. This helps them check if you’re able to pay the amount later under new terms for payment.

They’ll also want to see if you’ve made monthly payments on time so far. If you’ve missed payments or already have poor credit, they might see you as a higher risk. But if you’ve stayed up to date, the lender might be able to approve the holiday.

How long can you take car finance payment holidays for?

It is usually for up to 3 months. This is the standard period most lenders follow, as recommended by the FCA. But some lenders might offer longer. Sometimes 6 months. In rare cases, even up to 12 months. It depends on who your lender is—and why you need the break.

Each lender has their own rules. Some are stricter. Some are more flexible.

Do payment holidays count as arrears?

A car finance payment holiday won’t count as arrears. It’s a way to pause your payments for a while. But, the loan is still active, and interest usually builds up during the holiday. After the break, you’ll need to pay the loan back, plus any extra interest. The main advantage is that it gives you time to get back on your feet financially.

What are the problems with taking a payment holiday?

Interest

It leads to more interest. Even if you're not making payments, interest continues to accumulate. The longer the holiday, the more you’ll pay in the end. A shorter break results in less interest. To avoid extra costs, choose a payment holiday that suits your budget.

Monthly payments

Most of the time It means higher monthly payments later. After the holiday, you’ll need to catch up, and your monthly payment amount could increase. While the total debt remains the same, it gets spread over a longer term. A smaller monthly payment can be tempting now, but it could affect your finances later.

Running costs

Extending your car finance term means more time to manage your loan. This can lead to added running costs, like higher maintenance fees or insurance. So, before taking a payment holiday, speak to your lender. Find out how the break might impact your total expenses and future finance agreements.

Do payment holidays affect my credit rating?

And if you keep up with your payments after the payment holiday, your credit rating should remain intact. But if you miss payments or don’t follow the terms of the contract, it could affect your rating. It’s really important to stay on top of things to avoid any long-term impact on your credit.

What happens after the payment holiday ends?

After the payment holiday ends, your repayments will either increase or stay the same, depending on your choice. If you decide to keep the original loan term, your monthly payments will rise to cover the debt plus the interest.

Alternatively, if you extend your loan term to match the grace period, your monthly payments will stay closer to the original amount.

Example Let's say you had £5,000 left to repay over 10 months. If you took a 3-month delay with 1% interest, the following could happen:

If you keep the original loan term, your monthly payment will increase from £500 to £721.
If you extend the loan term by 3 months, your monthly payment will rise slightly from £500 to £505.

In both cases, once the payment holiday ends, you will resume monthly payments.

Is there an alternative option?

And if none of these options work for you, don’t worry. There are always other ways to manage your payments.

Voluntary termination is ideal if you’ve already paid 50% or more of the debt but can’t continue payments in the near future, even with a delay.
Balloon payment works best if you have the ability to pay off the remaining debt in one lump sum. You could also consider refinancing, but this is similar to a payment holiday, though with different conditions.

In general, there’s always an alternative, but the conditions vary depending on the finance provider. It’s a good idea to contact them and discuss the details.

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

No, you won’t be charged just for taking a car finance payment holiday. However, there are a few important things to consider.

After the holiday, your repayment terms will change. The remaining balance and any interest from the payment delay will be spread out across the remaining months. This means your monthly payments will be higher after the break.

And if you don’t follow the agreed terms, it could negatively affect your credit score. This may show on your credit report and could impact your ability to get finance in the future. Late payments or missed terms could also affect your credit rating and increase the cost of loans like PCP or HP.

Final words

Car finance payment holidays can be a helpful option if you're facing unexpected financial challenges. They allow you to pause payments temporarily, giving you some breathing room.

But, the conditions for these holidays depend on your provider, your credit rating, and the details of your finance agreement. You can’t know the exact terms until you talk to the finance company.

And it’s always good to reach out to Carplus specialists if you want more information. Their team can answer your questions, explain all the details, and help you find the best solution. Contact them today for advice!