What happens if I don't pay my car finance in the UK?

If you don't pay your car finance, your lender can repossess the car and demand full payment of the remaining balance.

When you enter a car finance agreement, you're expected to make payments on the scheduled dates. Missing a payment triggers a reminder from your lender, and they might also charge you a late fee, depending on your contract. Lenders will contact you if you miss a payment to discuss your situation and explore options to help you continue repaying the loan.

If you miss another payment, the lender will send an arrears notice, detailing how much you owe. Your lender will send these notices every six months until you clear the debt or they take legal action.

Before taking any drastic steps, your lender will issue a default notice, giving you 14 days to pay what you owe. If you don't settle the debt within this period, your lender can terminate the agreement, repossess the car, and require you to pay off the remaining balance in full.

Basically the consequences are:

• Arrears notice: Your lender will inform you of any missed payments.
• Late payment fees: These are typically outlined in your contract.
• Impact on your credit score: Missing payments can harm your credit score, making it harder to get finance in the future.
• Car repossession: If payments are consistently missed, the lender may repossess your vehicle.

Will my car be repossessed if I don't pay my car finance?

If you miss payments on your car finance and can’t pay the outstanding amount after your agreement is terminated, the lender may repossess your vehicle. Before this happens, the lender will usually give you opportunities to catch up on payments or explore alternative arrangements. If you’re struggling to make payments, it’s important to contact your lender as soon as possible to discuss your options and potentially avoid repossession.

Can my car be repossessed if I have paid more than half on my finance?

If you’ve paid more than half of your hire purchase loan, your lender cannot repossess your vehicle without following the proper legal process. This rule protects you by ensuring that repossession isn’t automatic after reaching this payment milestone. You also have the right to return the car to the dealership at any time after paying half of the total amount owed. This option can help you avoid further payments if you no longer need the vehicle or are struggling to keep up with the finance agreement.

If your lender does wish to repossess the car, they must obtain a court order, provided you’ve paid more than a third of the total loan amount.

What can I do if I have a car on finance and can't afford car payments anymore?

If you’re finding it difficult to afford your car payments, the worst thing you can do is ignore the problem. Failing to pay your finance agreement can severely damage your credit score, making it much harder to borrow money in the future. Instead, it’s important to contact your lender as soon as possible and be honest about your financial situation.

Your lender may be able to help by adjusting your repayment plan, offering a payment holiday, or even extending the loan term to reduce your monthly payments. By being proactive and open about your difficulties, you increase the chances of finding a solution that allows you to keep your car and avoid further financial stress.

Once your lender understands your situation, they might offer several options to help you manage your payments.

Refinance your car loan to make payments more affordable

If you're struggling with payments, consider refinancing your PCP (Personal Contract Purchase) or HP (Hire Purchase) contract, especially if you can secure a lower interest rate. A lower rate might be possible by extending the term of your contract, though this could cost you more over time.

To explore this option, ask your lender for a settlement fee. This will help you and potential lenders estimate how much your monthly payments could decrease if you refinance your existing car loan.

Get a better deal by part-exchanging your vehicle

If you’re struggling with your current car payments, part-exchanging your vehicle for a more affordable one could be a smart move. To start, you’ll need to request a settlement figure from your lender, which is the amount you need to pay off your current finance agreement.

Next, get your car’s market value assessed. It’s a good idea to obtain quotes from multiple dealerships to ensure you’re getting the best possible deal.

Part-exchanging can help you secure lower monthly payments on a different car, easing your financial burden while still allowing you to have a vehicle that meets your needs.

You should sell your car

If selling your car seems like the best option, make sure you get permission from your lender first. Be aware that if the sale price doesn’t cover the settlement fee, you’ll need to pay the difference.

Voluntary termination

If you’re struggling with your car finance, the law allows you to return the car by paying off half of the total amount owed. If you have a PCP (Personal Contract Purchase) deal, you’ll also need to cover the final payment. After this, you won’t owe anything more to the lender, but you’ll be left without a car.

For Hire Purchase (HP) or Conditional Sale agreements, your deposit and monthly payments are designed to cover the full cost of the car. If you’ve already paid off half the debt, voluntary termination can be a straightforward option to return the car and end the agreement.

With PCP finance, your monthly payments are lower, but you’ll face a balloon paymentat the end if you want to own the car. Because of this structure, it can take longer to reach the halfway point of repayment, sometimes not until near the end of the contract term.

Reaching the halfway point early in the agreement can be costly. However, voluntary termination near the end of the contract may not be your best option. At this stage, your car could be worth more than what’s needed to settle the agreement, allowing you to use the extra equity to finance another vehicle.

What happens if I can’t make my Personal Contract Purchase (PCP) payments?

If you’re struggling to make your PCP payments, you have a couple of options. One option is to request an ‘early settlement’ figure from your finance provider and pay off the remaining balance to end the contract early. This can help you avoid further monthly payments but may require a significant lump sum.

Alternatively, if you’ve already paid half or more of the total amount payable, you can voluntarily end your contract. This allows you to return the car without any further payments, but you won’t receive any money back if you’ve paid more than half. Each option has its own implications, so it’s important to consider your financial situation before deciding.

What happens if I can’t make my Hire Purchase (HP) payments?

If you’re unable to keep up with your Hire Purchase (HP) payments, you have two main options. You can either request an early settlement figure from your lender to pay off the remaining balance and end the agreement, or you can opt for voluntary termination if you’ve paid at least half of the total amount owed.

It’s important to review your contract to understand your options fully. If you’re unsure, contact your lender—they can explain the best course of action based on your specific situation. Additionally, it’s worth discussing alternative payment plans with your lender before deciding on early settlement or termination, as they may offer a solution that helps you manage your payments more effectively.

Can I just hand back the car?

Whether you'll be able to get out of your agreement early will depend on the type of finance deal you have.

Hire purchase

If you bought your car with a Hire Purchase agreement, there are specific rules for returning it. Your contract should outline whether this option is available and what steps to take. Generally, you can return the car if you've paid off half of its total cost or if you can pay the difference between what you've paid and half of the vehicle’s price.

If you no longer need the car, formally request to terminate your loan. Make sure to put this request in writing and keep a copy for your records. Returning the car early could save you money, but if you’re considering buying another vehicle, it’s wise to avoid using credit again. This approach helps you stay financially stable and avoid further debt.

Personal contract purchase

With a PCP agreement, you can return the car through 'voluntary termination' if you’ve paid off half or more of the total amount owed. However, if you’ve paid more than half, you won’t receive any refund. After you initiate the voluntary termination, your finance provider will send you a settlement figure, which is the remaining balance that needs to be repaid.

Understanding this figure is crucial, as it represents the final amount required to clear your finance agreement.

How will a late car finance payment affect my credit score?

While making timely car finance payments can boost your credit score, missing payments can significantly harm it. Your credit score reflects your credit history, so any late or missed payments will negatively impact it and could lead to a bad credit score.

When you enter a car finance agreement, your lender reports your payment history each month. Consistently paying on time can improve your credit score, showing that you’re reliable with credit. However, if you miss a payment or pay late, this will be recorded on your credit report and remain there for six years, affecting your ability to get credit in the future.

If you think you might miss a payment, it’s crucial to contact your lender immediately. They may be able to offer alternative solutions to help you avoid further damage to your credit score.

What support is available if I'm struggling to make repayments? 

Missing a car loan payment can be an embarrassing and stressful experience. But there are organisations that offer free advice to deal with such problems - such as Citizen's Advice, Moneyhelper,  or StepChange in the UK. We also recommend that you contact your lender directly if necessary. They may be able to offer more flexible repayment plans.

Contact our brokers for consultation

When you’re facing financial difficulties, it can be challenging to decide on the best course of action. That’s where our professional advisors come in. By getting expert advice, you can gain clarity and confidence in your next steps. Don’t wait—call now for confidential assistance and discover how we can help you find the right solution for your situation.