What happens if I miss a payment on my car finance?

Life can be expensive, and with the cost of literally everything going up, it might feel like your budget is getting squeezed tighter and tighter. Life can also be unpredictable, and if it throws you a curveball that puts an extra strain on your finances, you might find yourself in a situation where paying for your car finance is getting harder to manage.

If this is you, don’t panic. There are things you can do to help sort the situation out, but no good will come from burying your head in the sand and ignoring the problem. 

What happens if I miss a car finance repayment?

Your lender will have a policy that sets out how they handle missed payments and unpaid car finance, so your options will depend on your specific lender’s policy. Many lenders might charge you a late payment fee, but they’ll usually also have a whole host of options that can help you if you’re struggling to make your payments.

If your circumstances have changed, or if you’re having a particularly tight month, and you know you won’t be able to make a payment, the best thing to do is get in touch with your lender as soon as you can. Having the conversation may feel awkward or uncomfortable, but trust us - it’s way better than doing nothing and hoping the problem goes away. Spoiler - these things never just go away on their own.

Once your lender knows what’s going on, they can help you find a way to get sorted. For instance, they might be able to give you an extension, or change your payment dates.

But, they can’t help you if they don’t know what’s happening - that’s why it’s so important to contact them at the first sign of trouble.

What happens if I can’t afford my repayments?

Life happens, circumstances can change, and you may find that you just can’t afford to pay for your car finance anymore. If this happens to you, talk to your lender - don’t just stop paying and hope for the best.

If you’ve just signed up to a car finance agreement, and then realise it’s not right for you after all, you have a 14-day cooling-off period within which you can end the agreement and walk away. Although you’ll be able to exit the agreement within this period, you’ll still have to repay the lender for the amount borrowed.

But if you’re well into your agreement period, and you miss payments without talking to your lender about it, they’ll send you an arrears notice to tell you how much money you owe them. This is a tricky situation to be in, and it can be bad news for your credit score, so it’s best to try and avoid getting to this point if you can.

The best thing you can do is to get in touch with your lender as soon as you know things are looking a bit rough. They’ll have some options to help you if it’s a short term issue - like giving you an extension, or changing your payment dates. 

If you’re looking at a longer term change in circumstances, and you won’t be able to afford your car finance from now on, then it may be worth exploring voluntary termination. This is when you end your car finance agreement before the official end of the term, and you have the legal right to do this as long as you meet certain conditions. There are ways to end hire purchase (HP) agreements early, and it’s possible to end personal contract purchase (PCP) agreements early too, so take a look at your options.

What impact will it have on my credit score?

Car finance can be a great way to build your credit score, as long as you keep up with repayments. On the other hand, missing payments can have the opposite effect.

When you’re in a car finance agreement, the lender reports back to the credit reference agencies every month, to say if you’ve made your payment and if it was on time. If they have to report that you’ve missed payments, this will put a dent in your credit score. Plus, the information will stay on your credit report for six years.

If things are tight and it looks like you’re going to miss a payment or be late, get in touch with your lender so they can help you find a way around it.

Will my car be repossessed?

Legally, the lender owns the car until your finance balance is paid off. If you don’t keep up your end of the bargain and make all your car finance repayments, then the lender has the right to take back the car. 

Repossession is always a last resort, and the lender will want to work with you to try and find another solution before it gets to that point.

If the lender does go down the repossession route, they can repossess the car without a court order if you’ve paid back less than a third of the full amount you owe. If you’ve paid more than this, you’ll usually be invited to a court hearing. The court might grant you a ‘time order’ (which you would need to apply for), to give you extra time to catch up with the payments you’ve missed and get the finance agreement back on track.

Repossessed cars are often sold off at auction for less than their full value. If this happens to your car, the proceeds from the auction may not be enough to cover your debt with the lender, and you may still owe them some money.

How can I catch up on missed payments?

As soon as you realise you can’t afford your car finance payment, talk to your lender. You can work with them to put a repayment plan in place, so you can catch up on your missed payments. You’ll have a say in how this plan works, so make sure it’s realistic and fits with your budget.

More generally, stick to a budget to make sure you’re not spending more than you have, and prioritise your car finance so you don’t miss any more payments. Remember - just like diet, exercise and learning a new language on an app, consistency is key when it comes to rebuilding your financial health.

What help is available to help improve my money management?

Even with the best laid plans (and budgets), life can be unpredictable, and circumstances can change overnight. Being prepared to handle these curveballs is important, to make sure they don’t completely derail your finances or take a hammer blow to your credit score.

The Financial Conduct Authority (FCA) has some advice for handling the rising cost of living, and you can also get useful, free advice on managing your money from Citizens Advice. 

If you’re dealing with debt, StepChange has tons of free help and advice to put you back in the driving seat and get on top of your finances.