Coronavirus and car finance

November 26, 2020 by

Help is at hand if you are struggling to make monthly car payments because of financial difficulties caused by COVID-19 coronavirus.

Consumers struggling to make car finance payments because of the coronavirus have been offered help under measures implemented by the Financial Conduct Authority (FCA).

  • FCA announces proposals to help consumers
  • Initial payment freeze extended
  • Interest is accrued so may not suit you
  • Can you simply hand your car back?
  • What to do if you have PCP?
  • What to do if you have PCH?
  • What to do if you lease a car?

The Financial Conduct Authority (FCA) issued guidelines to lenders that they should provide the option of a payment freeze to help customers who are having temporary difficulties meeting finance or leasing payments due to COVID-19. You will have until 31st of March 2021 to apply for a payment freeze of up to six months.

You’ll need to contact your finance provider to arrange a payment freeze. Just cancelling your direct debit isn’t enough – your finance provider will count this as a missed payment.

If you have already applied for a six-month payment freeze (also known as a ‘payment holiday’) that’s since ended, you won’t be able to apply for a second payment freeze.

If you applied for a payment freeze, and this freeze is coming to an end, you will soon be contacted by your finance provider. You’ll need to agree a new payment plan with them, which will take into account the missed monthly payments.

The FCA also expects firms not to end finance agreements or repossess cars if customers are experiencing temporary financial difficulties because of the coronavirus.

Christopher Woolard, interim Chief Executive at the FCA, said: “We are very aware of the continued struggle people are facing as a result of the pandemic. These measures will provide much-needed relief to consumers during these difficult times.

“We have tailored our measures to specific products. For most of these proposals, firms and consumers should consider the amount of interest which may build up, and balance this against the need for immediate temporary support.

“If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan.”

The FCA also stated that if a customer wishes to keep their car at the end of their PCP agreement, but does not have the cash to cover the balloon payment due to coronavirus-related financial difficulties, firms should work with the customer to find an ‘appropriate solution’.

What does this mean for you?

If you can’t afford your monthly car payments you should speak with your lender.

The Finance and Leasing Association advises customers to “contact their lender as soon as possible if they anticipate problems – they’re there to help. The type of assistance will likely vary depending on the customer’s circumstances, but starting the conversation is key”.

Can I just hand my car back?
It depends on how you financed the car…

Cars bought on PCP
If you bought the car on PCP finance you can end the agreement early if you’ve already repaid more than half the total finance amount – including interest and fees.

You sign the car back over to the dealer through a Voluntary Termination clause and you won’t have to make any more monthly payments. You may have to pay admin charges – details of these should be in your original contract.

If you haven’t paid up to 50% of the loan then you will be expected to make up the difference. So, if you bought a car for £30,000 and have paid £10,000 you will be expected to pay £5000 before you can hand back the car.

In these exceptional circumstances, however, talk to your lender about what is the best solution for you.

Cars bought on PCH
It’s a little more tricky to end a Personal Contract Hire agreement early and is usually at the discretion of the lender. Check the agreement you signed with the finance provider – it will have details of their cancellation policy. Talk with your finance provider to work out what’s the best solution for you. The plans outlined by the FCA stipulate that firms should treat you ‘fairly’, though that is open to interpretation.

Lease cars
Unfortunately, if you want to end your lease early, you may have to pay off your whole leasing agreement – even if you decide to return your car ahead of schedule. If you’re struggling to pay for your lease, it might be possible to extend your agreement to reduce the amount you pay each month. Contact your finance provider to negotiate these terms.

Read this: Buying a car during coronavirus
Read this: Car finance guide