Covid-19 has changed the world as we know it – at least in the short term. Almost everything that we took for granted before is now seemingly beyond our reach; including some of the most… read more...
Covid-19 has changed the world as we know it – at least in the short term. Almost everything that we took for granted before is now seemingly beyond our reach; including some of the most basic parts of our existence like jobs and an income. With a large portion of the nation’s workers now furloughed – or potentially worse – there is a building amount of concern over the population’s ability to make payments on their finance contracts.
We are a credit-driven society, and have been for some time. The introduction of stricter lending laws and regulations post-banking crash have allowed for an environment where people can responsibly borrow reasonable amounts to purchase things that they would not be able to afford otherwise. Unfortunately circumstances like these – a reduced income and general levels of uncertainty – mean that a lot of individuals are now struggling or at least concerned over their ability to make payments to service these debts.
The positive news? There has been a genuine effort made by the majority of finance houses and lending companies to introduce terms to assist people who have found themselves in this position. If you have a mortgage there is a generally available 3 month ‘payment holiday’ to assist with your personal cashflow, and similar principles are being applied to other areas of the lending market. Car finance is no exception to this, although due to the more varied nature (say compared to mortgages) there has been no blanket consensus from lenders on the terms that are being offered.
I’m worried about my car finance payments, what do I do?
The simple first step is to call your finance company. If you are unsure who your actual finance company is then look through your paperwork (yes that does mean dig it out from the back of the cupboard with that 5 year old P45 and that water bill that you once complained about). Once you have the company and the policy number, call up – and be prepared to sit in a queue for a while as many other people will be doing the same thing!
Try the WeQ4U App if you don’t like sitting on hold!
Once you get through, just ask the question, “What can you do to make this easier for me?”. Don’t be embarrassed that you may be struggling financially during this difficult time, everyone is struggling in one way or another. The answer you receive will vary based on many factors. The most likely options they will give you are:
A payment holiday
Like with the mortgages mentioned above, many lending organisations are offering their customers a short break on their monthly repayments, so they can focus the more limited cash they have right now on essentials. The positives of this are obvious; less payments out in the short term giving the customer more breathing space. The negatives are that this will either increase your monthly payment after the holiday to account for the break, or extend your term to do the same. Make sure you need a payment holiday before you accept one as you are likely to pay slightly more interest over the lifetime of the contract as a result of taking one.
The length of payment holiday offered to you may vary from lender to lender and from customer to customer.
It’s also worth considering that if you take a payment holiday and your finance is a ‘PCP’ contract (see our ‘Understanding Finance’ guide for more details, or if you are not sure which type you have!) then you must consider the potential effect of delaying the ‘end point’ of your contract. Without going into too much detail here, changing the end point of your contract affects the ‘Guaranteed Minimum Future Value’ of your vehicle, which means that the ‘Balloon payment’ due at the end of the contract will change. Now there is no need to panic and start looking for online tools to calculate the change as your lender will do this for you! (Although here is a link to a GMFV calculator if you did want to try and calculate a general figure yourself).
We have received notification from our industry contacts that lenders are trying to accommodate these payment holidays without affecting the GMFV if possible; so make sure you clarify with your lender.
If you have personal finance – like a personal loan – which you have spent on a car then a lot of these options may not be available; contact your lender for details. Some have announced in the last few days that they are offering interest free periods (less useful than a payment holiday but still a step in the right direction)!
More drastic measures
If a payment holiday won’t suffice – for example if you have lost your job entirely because of the crisis – then there may be other options open to you. A key option is to enact a ‘Voluntary Termination’, which you have the legal right to exercise if you have paid off more than 50% of what you owe on the car. This essentially means you hand the car back, and you walk away with no more money to pay, but no money back either. It also shouldnt affect your credit file to do so – provided this is the first time you are utilising this option. To reiterate though, this is an option for those in real financial trouble, and would not usually be a sound course of action for someone who is financially stable.
My finance agreement is up and I want to hand my car back
Unfortunately you are going to have to wait. All dealerships have ‘closed their doors’ (at least in the physical sense) during the lockdown period, and so the chances are high that you will have to hold onto the vehicle until we have weathered more of this storm. Try not to cause any damage to the car whilst you are waiting for things to return to normality, as this can affect your settlement figure.
It’s worth mentioning that none of the strategies listed above should have any effect on your credit file. The Financial Conduct Authority (FCA) have been heavily involved in the introduction of the payment holidays and other solutions to the current predicament to ensure that consumers suffer the least amount of adverse effect from all of this.
Call your lenders and have a chat with them if you are concerned about your ability to make payments during the current crisis. The chances are strong that your lender will have put measures in place to help you, and all you need to do is ask.
If you have any further questions on the matter, please let us know on Facebook or Twitter, and we will be happy to try and help you to understand your situation. In times of hardship, we have to assist each other!
Carsnip is the UK’s largest used car search engine, with over 500,000 dealer sold used cars across the UK. We operate a natural language search engine, to help you find your perfect used car, and narrow down the choice by what’s most important to you.