What happens if I can’t afford to make payments on my car finance agreement?

If you’ve taken out a car finance, you’ve probably agreed to make repayments over three to five years - but a lot can change in that time. Here’s what to do if your circumstances change and you can’t afford to pay your car finance.

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

If you can no longer afford the repayments on any credit agreement, the first thing you need to do is get in touch with your lender and explain your situation. Although solutions will vary between lenders, you might be able to reach an agreement that allows you to keep the car. 

Once your lender knows more about your current situation, they will be able to advise you of your options, which will depend on the length of time left on your contract, the amount owed, and the type of finance you took out.

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

If you’ve taken out either a hire purchase agreement, or PCP car finance arrangement, you may be able to activate the voluntary termination element of your contract if you’ve paid off half the total balance. This means you can hand back the vehicle with nothing more to pay.

If you’ve paid off less than 50% of the money owed, you can still return the car but will have to pay the amount owed to make up the shortfall.

What if I can’t afford repayments on a personal loan?

With a personal loan, an option might be to sell the vehicle and use the funds to pay off the loan amount. If you’re not in a position to sell your car due to work commitments as an example, then you’d need to speak to your lender about what options are available to you.

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

If none of the above options are available to you, your lender might take the following steps:

• Send a payment reminder - If you miss one payment, your lender will send a reminder to let you know your payments have fallen behind.
• Send an arrears notice - If you miss two or three payments, your account will then be in arrears and your lender will send an arrears notice. This notice will outline how much you owe and how to make repayments. Your lender will continue to send arrears notices at intervals of at least six months until you have paid off the arrears or they have obtained a court order.
• Send a default notice - If you don’t respond to the arrears notices, your lender can send you a default notice. This will give you up to 14 days to clear the arrears before the agreement is terminated and further action is taken. This could include recovery of the car.

The finance company can repossess your car without a court order if you’ve paid less than a third of the total amount owed, including interest, under the terms of the finance agreement.

Missing payments can also have an adverse effect on your credit file so it’s always best to speak to your lender as soon as you can. If this has happened to you in the past and you’re now looking for car finance with bad credit then Zuto could help. We work with lots of lenders who help customers with a less than good credit score.

If you’re in financial difficulty, it’s worth speaking to one of the UK’s debt charities - such as MoneyHelper (formerly the Money Advice Service), Stepchange, or Citizens Advice - for free, impartial advice. 

How to afford a car

If you’re looking to buy a new or used car on finance, it’s important to first work out whether you can afford the repayments. Use our car finance calculator to find out how much you can afford to borrow.

Whatever your credit history, our calculator will give you a guide of how much you could borrow in a couple of clicks. It’s also worth giving the team at Zuto a call to find out about the different car finance options that are available.

Ryan has worked at Zuto for a number of years and uses his experience within the industry to help customers understand the ins and outs of car finance.