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

Roman Danaev

13 April 2022

Often, by taking on the responsibilities of a car financing loan, you are burdening yourself with monthly payments for three to five years. But circumstances can change at any time, and the day may come when you can't afford car payments. What to do in this situation? In this article, you will learn how to get out of a situation whereby you can’t pay your debt and consider the support you can count on.

In the event of financial difficulty, contact your lender right away, as they may be able to help you or you can seek advice from free debt charities.

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

When you realise that you are no longer able to fulfil your obligations under your credit agreement, contact your borrower. Depending on the situation, you may be able to reach an agreement that will allow you to keep your car.

You may well have multiple options available to you once your lender knows more about your current situation.

Refinance your car loan to make payments more affordable

Refinancing your PCP or HP contract may be an option for you if it is available at a lower interest rate than what you currently have. A lower interest rate may be achieved by extending the term of the contract. However, keep in mind that simply extending the contract will end up costing you more in the long run.

To get the most out of your financing, you should ask for a settlement from your lender. This will allow car dealers and lenders to give you an estimate on how much lower monthly payments could be if you refinance the same car.

Get a better deal by part-exchanging your vehicle

If you're looking to save money and can’t afford car payments on your current car, consider trading in for a cheaper one. You'll need a settlement from the lender as well as an assessment of the market value of your car. If possible, get a quote from more than one car dealership to make sure you're getting the best price.

You should sell your car

If you're thinking about selling your car, be sure to get the lender's permission first. But be prepared for the fact that if the sale proceeds are less, you will have to make up the shortfall.

Voluntary termination

The law gives you the right to return the car by paying half of the amount owed. Plus, you’ll have to pay the final payment if you had a PCP deal. You will not owe anything more to the lender. But in this case, you will be left with nothing.

When you commit to buying a car with Hire Purchase or Conditional Sale financing, the deposit and monthly payments cover the full cost of what it takes to own the car. Therefore, if you have paid off half your debt, it will be fairly easy for you to get the car back through the voluntary termination process.

PCP finance means smaller monthly payments, plus a balloon payment at the end that requires payment prior to ownership. It can take more total financing periods before reaching the halfway point of repayment. This might not even happen until close to the term-end in some cases.

The cost of reaching the halfway point early may be too high for some people. If you're at the end of your agreement and want to get rid of it before its time, then voluntary termination may not be such a good idea. At this point, your car might hold more value than what is required to end the agreement early - with that extra equity being available to fund another vehicle.

What if I can't afford my HP or PCP finance?

The voluntary termination element of a hire purchase agreement or PCP car finance can allow you to get your vehicle back with nothing more owed if the balance has been paid off.

It is possible to return a car even if you have paid off less than 50% of the money owed. But you will have to cover the shortfall.

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 obtained your car using a Hire Purchase agreement, there are some rules that come with returning it. The original contract should state whether or not this option is available and what will happen if you want to return your vehicle. You can return any leased vehicle under certain conditions: when you have already paid half of the total cost of the car, or if you can pay off the difference between the amount you paid and half the vehicle’s cost.

Formally request the termination of your car loan if you don't need that car anymore. You can save money by buying another one, but make sure it’s not going on credit! Put in writing and keep a copy for future reference, so there are no negative effects for you from ending an agreement early.

Personal contract purchase

With a PCP agreement, you can return the car as a ‘voluntary termination’ if half or more of what was owed has been refunded. You will not get any money back if you have paid off more than half of the cost. The finance provider will then send you a settlement figure, which is the amount that needs to be repaid.

Car loans

The type of loan (in case of personal or fixed sum loan) you take out to buy your car will determine how it's paid back.

If the loan is secured, then your car becomes collateral. The lender may have a claim on your assets if you default on the loan. This is not true with an unsecured personal instalment financing option. But either way, it’s important to advise the lender as soon as possible so that everything can be resolved amicably between all parties involved.

How many payments can I miss before repossession in the UK?

The first missed payment will result in a reminder being sent out. If you then miss another one, your lender may send an arrears notice to inform how much is owed and when payments must be made; they can demand these at intervals of no less than every six months until the debt has been paid off unless a court rules against you.

If you are in arrears with your payments, the finance company can send a default notice which gives you 14 days to clear any unpaid balances. Failing to clear your arrears within 14 days will result in the finance firm taking steps to end the agreement and return the car provided under this deal.

The company has the right to have your car repossessed if you don't pay them back.

How are cars repossessed?

If you delay payments and have not paid more than a third of the total amount owed under the contract (including interest), a financial company can seize control of the car without a court order. But things work differently in Scotland - the firm will need a court order before taking any action against you.

You could be compensated for the financial loss if you've paid more than a third and your lender reclaims possession without a court order. If the court orders that you have no further liability for this debt, then all previous payments will be refunded.

The firm must apply for an order from the court if they want to repossess your car after you have made more than a third of payments. In England, Wales, and Northern Ireland, this means going through County Courts, whereas in Scotland, it requires applying with the Sheriff's courts.

The court process for repossessing a car

The trial stage is a critical time at which you must attend in person or be represented by an attorney. If you or your representative does not show up, the firm can demand both immediate payments (including any balloons) and that you return their vehicle.

Time order applications

The law gives you a final chance to catch up on your arrears and, if granted by the court, will allow for normal monthly payments while resuming ownership of any vehicles.

If your car is repossessed, it does not save you from further liability. You will also have to deal with additional debts and be subject to collection by the sheriff or bailiffs if, after selling the car at auction, there is not enough money to pay off the debts in full.

Can I hide my car from repossession in the UK?

The intention to hide a vehicle from creditors is considered concealment, which constitutes a crime under general car repossession laws.

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

Paying off your debt can help improve your credit scores. Late payments are never good for your credit score. Any late payments will show up on your report for six years, even if you pay off the debt in full. Once six years have passed since repayment, your credit history will move to"fully satisfied"status.

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 in a tough spot with your finances, it can be hard to know which steps are best. But there's one thing that won't hurt and may well help - getting professional advice from our advisors. Don’t hesitate any longer: call now for confidential assistance.

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