If you can’t afford your car finance, maybe because of the soaring cost of living or your circumstances have changed, don’t panic. We understand it’s a very worrying situation but we’re here to help. 

We’ll walk you through what to do, and explain your potential options so you can manage the situation and relieve the pressure on your finances - not to mention the pressure on you.

What happens if I don’t pay my car finance?

Not paying your car finance means you’re breaking your contract so it’s important to get in touch with the lender. They’ll appreciate the fact that you’re being proactive, open, and honest, and that you want to make the situation right. 

So what could happen if you can’t manage your car loan repayments? (Remember, these are just possibilities and won’t necessarily happen to you, especially if you can phone the lender before you miss a payment). 

Letter from your lender 

Your lender will write to you when you miss a payment to discuss your situation and the possible options to get you back on track. If you miss more payments after this and don’t contact them they’ll issue a default notice, which is recorded on your credit file. 

Late payment fees 

Missed payments mean you’ll be charged late payment penalties. These fees can vary between lenders but you’ll be able to see how much your lender charges in the small print of your contract. 

Default notices and County Court Judgments (CCJs) 

Missing several payments could result in a default notice being recorded on your credit file, or a County Court Judgment being made against you. A CCJ is an official demand for repayment by the lender. We’ll talk more about how late car payments affect your credit file and credit rating a little further on. 

Repossession 

Contacting your lender at an early stage is the best way to deal with repayment difficulties. Many lenders will work with you to find a solution, and repossession is always a last resort for them. 

If you’ve missed several payments, though, and you simply can’t make them up, or you’ve not been in touch with the lender, they may repossess your car to recover the money you owe. 

Here at Bumper, we know someone who works for a car finance company and they’ve assured us that repossession really is a last resort. Apart from a genuine concern for clients, it’s also in a finance company’s interest to keep these agreements going. So don’t worry when you get in touch with them – contacting them quickly is the best move you can make. 

How will late car finance payments affect my credit score? 

Your credit score reflects how well you’ve repaid loans and credit agreements in the past. So whilst repaying in line with your contract boosts your credit rating, the opposite is also true. Missing car loan payments lower your credit score, and the problem is that lenders use your credit score to decide whether or not you can borrow. 

Another issue is that the default marker and County Court Judgment we mentioned earlier stay on your credit file for six years and significantly reduce your chances of getting a good mortgage or loan deal in the future. 

So what are your options when you can’t afford your car payments? 

Can I give my car back to the finance company? 

You may be able to hand your car back depending on the type of finance you’ve taken out and how much is left to pay. Personal Contract Purchase (PCP) and hire purchase (HP) contracts do let you return the car – a process called voluntary termination – but only if you’ve repaid 50% or more of the loan (including fees and interest). 

If you haven’t paid this much you can pay the difference as a lump sum, although we appreciate this might be difficult when you’re struggling to make your repayments. Something else to consider with voluntary termination is that, if you’ve repaid more than 50% of the loan, you’ll lose that extra money if you hand the car back. 

In our opinion, voluntary termination is a better option if you have an HP agreement rather than a PCP, as with Personal Contract Purchase you’ll also have to make the large final payment, which might be difficult to fund. 

Refinancing for cheaper monthly payments 

Car Loan Refinancing means taking out a new loan that has better, more affordable terms. The new lender then repays your original loan. A cheaper monthly payment is the goal of refinancing, and you can achieve this via a lower interest rate or longer loan term. 

This might sound ideal in theory, but in practice, you need to be a little careful with refinancing, as you can pay significantly more money overall. On the plus side, the lower monthly payments help with the immediate financial pressure you’re under. 

If you’re interested in refinancing the first thing to do is find out from your lender how much they need to settle the loan. Then search for any available deals with other finance companies. 

Part-exchange for a cheaper car 

If you want to part-exchange your car for a cheaper one, again, you’ll have to ask for a settlement figure from your lender. You’ll also need to find out how much your car is worth – it’s probably quicker to do this online but you could also visit a few car salesrooms for a value. 

Hopefully, your car will be worth more than the settlement figure and you can part-exchange for a cheaper vehicle if you have the go-ahead from your lender. If the car is worth less than the amount you need to settle the loan you’ll have to find the difference yourself, which may or may not be possible.

There’s something called negative equity finance that might be helpful in this situation. This means you borrow the difference between your car’s value and the loan settlement figure. For this to work, though, you’d need to find a much cheaper car so the monthly payments do reduce. 

Who can help if I can’t afford my car finance payments? 

Debt charities like StepChange and Citizens Advice offer free help and moral support to people struggling to repay car finance and other types of borrowing. They provide confidential independent advice to help you find a way out of your current financial difficulties. 

National Debtline is another source of free support if you can’t afford to pay your car finance. They offer an online and telephone service, but also Webchat, so you can quickly ask a question or find out more information from a trained debt adviser. 

Hopefully, this article has given you a plan of action to deal with your car finance problems. The key step is to contact your lender before you actually miss a car payment if you can and to be open in explaining why you can’t afford your repayments. 

Even if you’ve missed a payment they should respond positively if you do this, and you’re also giving yourself the best chance of relieving the debilitating pressure of financial difficulty. 

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