If you find yourself struggling to afford your car payments in the UK, 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 when you can’t pay your car finance anymore, and explain your options. 

We’ll show you that you can manage the situation and relieve the pressure on your finances - not to mention the pressure on you.

I Can’t Afford My Car Repayments

The first thing you should do is get in touch with your lender. 

Not paying your car finance means you’re breaking your contract, it’s important to be open with the car finance provider straight away.  

They’ll appreciate the fact that you’re being proactive and that you want to make the situation right. 

What Will Happen If I Can’t Pay My Car Loan Repayments?

There are a few possibilities when you stop making your car repayments. 

This is likely the order in which things will happen.

1. Letter from your lender 

Firstly, 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. 

2. Default Notice

If you miss more payments and don’t contact them they’ll issue a default notice. This will be recorded on your credit file. 

3. Late payment fees 

Further missed payments could then result in late payment penalties. 

These fees can vary between lenders but you can check how much your lender charges in the small print of your contract. 

4. County Court Judgment (CCJ) 

Missing several payments could result then mean 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. 

5. Repossession

Finally, as a last resort, your car may be repossessed. 

This will only happen if you’ve missed several payments and you simply can’t make them up. 

Or if you’ve not been in touch with the lender, and are deliberately avoiding them. 

Many lenders will work with you to find a solution, and repossession is always the final option for them. 

Apart from a genuine concern for clients, it’s also in a finance company’s interest to keep these agreements going. 

Here at Bumper, we’ve spoken to people who work at car finance companies and they’ve assured us that repossession really is a last resort. 

Don’t worry when you get in touch with them – contacting them quickly is the best move you can make.

Will late car finance payments affect my credit score? 

Yes, missing car loan payments can lower your credit score. 

Your credit score reflects how well you’ve repaid loans and credit agreements in the past, so not keeping on top of your car payments will result in a lower credit score.

This could be a problem in the future as lenders use your credit score to decide whether or not you can borrow. 

Another issue is that the default marker and County Court Judgment stay on your credit file for six years. 

This can significantly reduce your chances of getting a good mortgage or loan deal in the future. 

What are my options when I can’t afford my car payments? 

The most common options for someone struggling with car payments are to do the following:

1. Give the car back to the finance company.
2. Refinance their finance deal for cheaper monthly payments.
3. Part-exchange deal for a cheaper car.

Let’s go over each of these options in more detail.

Can I give my car back to the finance company? 

You might 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. 

However, this is only an option if you’ve repaid 50% or more of the loan (including fees and interest). 

If you haven’t repaid over 50% 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. 

This is because 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 you do 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. You can 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 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. 

Are there any organisations that can help? 

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 help if you find yourself unable to pay car repayments. 

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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Author - Joseph Law

Joseph has been writing about cars for over seven years and writing for Bumper for over two, blending his passion for automobiles with a talent for storytelling.

Joseph has written about engineering and cars for Autozilla, Komaspec, and several engineering manufacturers. When he's not writing or tinkering with one of his five cars, Joseph dreams of owning an Alfa Romeo 33 Stradale.