‘I have a car on finance and can’t afford it, what are my options?’.
Circumstances can change – whether you’ve suddenly lost your job, are unable to keep up with the cost of living, or are being held back by a bad credit score. As a result, you may be struggling to meet the monthly payment deadlines.
Don’t panic – reach out to your lender!
The specific terms of the agreement will differ from lender to lender, but they should be able to provide some extra support. Simply put, the quicker you act, the easier it will be to find a solution.
At We Finance Any Car, we won’t ever offer you finance that you can’t afford. From the initial application process to signing on the dotted line, our aim is to set you up for success.
- Expert guidance every step of the way
- Wide range of car finance options
- No credit score impact
The first step is to check that you’re eligible – submit a quick application today.
Remember, you won’t have to commit to anything until you’ve carefully reviewed your options…
I have a car on finance and can’t afford it – what happens now?
If you can no longer afford your car finance, the worst thing you can do is ignore it. There are a few consequences to missing the payment deadlines:
- Arrears notice: The lender will notify you of any missed payments.
- Late payment fees: These will have been outlined in your contract.
- Vehicle repossession: If you consistently fail to make payments, the lender may take back possession of the vehicle.
- Credit score impacted: Missing payments can be damaging to your credit score and may impact your ability to apply for finance in the future.
This looks scary, but vehicle repossession is often the last resort.
You can avoid this by having a conversation with your lender. Regardless of your circumstances, they should be willing to work with you and explore options for managing the loan.
What happens when a car is repossessed?
Technically, the lender has ownership of the car until you have fulfilled the agreement. This applies to a variety of car finance types, including Hire Purchase and Personal Contract Purchase.
If you default on your payments, the lender has the power to take back the car.
A few details to be aware of:
- You will need to miss a minimum of two payment deadlines before repossession is considered.
- Paying less than a third of the amount owed could lead to repossession without a court order.
- The vehicle will usually be sold at an auction to recover the outstanding debt.
- If the sale does not cover the entire loan, you may still owe the lender a deficiency balance.
Once your car is due to be repossessed, you may be eligible for a time order. This will give you the opportunity to cover the missing payments over a period of time and keep hold of the car.
How long will a late payment impact my credit score?
If you fail to make your monthly car payments, it can be recorded on your credit report and remain for up to six years. Lenders will be able to access this information when reviewing your application – a lowered credit score may impact your eligibility.
In more extreme cases, missed payments can lead to a County Court Judgement. This will cause considerable damage to your credit score and can act as a barrier to car finance.
But it’s not all doom and gloom!
The impact will lessen over time, as lenders tend to view your most recent credit history. So, as long as you put measures in place to recover your credit score, it shouldn’t hold you back for too long.
Did you know that it’s possible to apply for car finance with a default on your file?
At We Finance Any Car, we offer flexible solutions for a range of applicants, including those with bad credit.
A quick note about the cost of living:
For many, the rising cost of living has affected the everyday – from food and fuel prices to energy bills.
Whereas previously you may have been in a position to comfortably finance your new car, you may now be under financial stress. This can make keeping on top of monthly deadlines a challenge.
So, where can you find support?
The Financial Conduct Authority has some useful advice on how to manage your financial situation, including tips on how to budget.
Another place to visit is Money Helper. Here, you’ll find a series of short guides about the cost of living crisis.
Of course, if you have any concerns about your car finance agreement, our team are always on hand to help. Get in touch today.
What to do if you can’t afford car finance:
The good news is that there are a few options available. The right one for you will depend on the amount you owe, your current financial situation, and the type of car finance agreement you are in.
Have a chat with your lender
When it comes to car finance, communication is key.
Telling your lender that you are unable to make the payments can feel like a daunting task. But it’s important. They will want to know if you’re struggling and may be able to make some adjustments.
Sometimes, extending the deadline or tweaking your payment plan is all it takes to get you back on track.
Request a deferral
In other cases, you may be able to request a deferral.
This is an agreement between you and the lender to temporarily postpone the monthly payments. The terms and conditions will vary between lenders: some will require you to continue paying interest while others will allow you to defer the whole payment.
One thing to bear in mind is that the deferred payments don’t just disappear. The lender will add them onto the end of the loan and you will have to pay interest for longer.
Refinance your car loan
Another solution is to refinance your existing loan for a more affordable one. Generally speaking, this will mean paying lower monthly instalments for a longer period of time.
First, your lender will need to provide a settlement fee. This will give you an idea of how much it would cost to buy the car outright. From there, you’ll be able to get a referencing quote and compare how much cheaper a new loan would be.
Did you know that you can refinance a PCP balloon payment?
In this type of agreement, the final lump sum may prevent you from keeping hold of the car. Refinancing can make things a bit more manageable.
Part-exchange for a cheaper option
If your car is no longer feasible and refinancing isn’t an option, you can swap it for something cheaper. Again, you’ll need a settlement fee.
The most common solution is to trade in your current vehicle at a dealership. Alternatively, you can sell the car privately, using the proceeds to pay off the remaining balance and choose a more affordable alternative – with the permission of the lender.
What happens if your car is worth less than the settlement fee?
In this situation, you’ll have to make up the difference yourself. We recognise that this is not always achievable, especially if the cost is in the thousands. The solution? Negative equity car finance. This will allow you to swap your car, even with an outstanding balance.
Why not consider financing a used car?
Swapping your vehicle for an older model can often be a cost-effective choice, helping you to align your monthly expenses with your budget. Insurance will also likely be less.
Return your car
Provided you’ve paid off half of the amount you owe, you are able to return your car to the lender. This is also known as a voluntary termination.
No longer having access to a car can make your everyday life a little more difficult, so it’s important to think this through carefully. Additionally, terminating your contract early can have an impact on your credit score. However, this won’t be as damaging as an involuntary repossession.
How can different finance types impact this option?
- HP car finance: This works by covering the full cost of the car through set monthly payments. You should be able to fulfil the loan quicker, making the option of returning the car more viable.
- PCP car finance: This involves smaller monthly payments, with a sizeable amount left to pay at the end of the contract. As a result, it will take much longer to reach the halfway point. Part-exchanging the vehicle may be a better route to go down.
How much car finance can I afford?
Financing a car is a big commitment. Before you’ve even signed the agreement, it’s crucial to understand what you can and can’t afford. This will help to prevent any issues in the long run.
Use our free car finance calculator.
This simple tool should give you an idea of your current financial situation and what options are available.
From there, you can apply through We Finance Any Car.
