What can I do if I can’t afford my repayments?

We don’t like to do it often but, to paraphrase Ronan Keating, life can be a rollercoaster – especially when it comes to your finances.
 
When you’re on a winning streak, building a nice nest egg and everything is running smoothly, you could end up making financial commitments that would make a sudden unexpected drop feel even more terrifying!
 
Your car finance payment is likely one of your biggest monthly expenses, second only to your rent or mortgage. If your finances take a slight dip and your budget gets a little stretched, that monthly repayment can quickly go from an affordable bill to a source of great anxiety.
 
So, if our financial circumstances can fluctuate, what can we do when money gets tight, and we start struggling to make our repayments on time – or at all?
 
Don’t panic; you do have options. Let’s dig into the details together:

What happens if I miss payments?

Now, we don’t want to set alarm bells ringing but it’s worth knowing that missing a finance repayment is technically in breach of your agreement.
 
That doesn’t mean your pride and joy will be instantly repossessed or you’ll have bailiffs knocking on your door straight away. Instead, the first time you miss a payment, expect to receive a polite phone call or letter from your lender.
 
Any communications you get won’t just be a reminder that your payment is due. They should also explain the different ways that you can get caught up and pay back the arrears you owe.
 
Worst case scenario: if you can’t catch up and don’t negotiate with the lender (more on that later), you’ll be issued with a default notice.
 
Continue missing payments and the situation can escalate. The lender might take further action against you to try and recover their debt. That could include applying to the court to get a County Court Judgement (CCJ) or making moves to repossess your car.

What options do I have if I can’t afford payments?

First things first, as soon as you start struggling with your repayments, speak to your lender. We promise, they won’t bite.
 
As each lender operates differently, it’s only by speaking with them and being honest about your situation that you’ll be able to find out exactly what your options are.
 
What happens next can also depend on your individual circumstances. If the issues that are preventing you from making payments are only likely to last a month or two – you had to replace your boiler or fix a flooded bathroom – then you may be presented with different solutions than someone whose financial situation has permanently changed.

The options available might include:

• Taking a payment holiday or freezing your payments for a set period
• Temporarily reducing your payment amount
• Changing your payment date
• Extending your loan term
• Opting for voluntary termination

Can I negotiate with the lender?

Don’t be afraid to get in touch with the lender as soon as you start struggling to make repayments. After all, it’s in their interest to do everything they can to stop you defaulting on the loan.
 
Each lender will have its own policy in place, but you might be surprised by how flexible they can be.
 
You could find that you can pause your payments until you get back on track or extend the loan term so that you have a lower – and more affordable – monthly payment amount.

Can I get a payment holiday?

A payment holiday might not come with a poolside view, but they can still be helpful if you’re experiencing a temporary financial hiccup.
 
Not all lenders can offer payment breaks, so it’ll depend on the policy of the lender you owe. Depending on their terms, you could have your payments suspended for one, three, or even six months. However, keep in mind that you will still need to make these payments eventually and you might be charged interest during the break.

Can I hand the car back?

If you’ve fallen behind with your repayments and can’t see a light at the end of the tunnel – or you simply don’t need your car anymore – you can end your agreement early and hand the car back by exercising your legal right to opt for voluntary termination.
 
Set out under Section 99 of the Consumer Credit Act 1974, voluntary termination allows you to end your loan and hand the car back to your lender at any point. You just need to tell the lender you want to voluntarily terminate and return the car. It is important to note you will need to pay 50% of the total amount payable (including the balloon payment in a PCP).
 
If you’ve made some payments but not yet reached this point, you’ll need to pay the difference, and if you’ve already paid over 50%, you can return the car without needing to pay any more money. Extra charges might apply if the car is damaged beyond fair wear and tear.
 
There is one other option if you haven’t yet met the 50% threshold and can’t afford to pay the difference: voluntary surrender. This is typically seen as a last resort as it can impact your credit score.
 
How does it work? When you give up your wheels through voluntary surrender, the lender will take your car to sell at auction and use the funds earned to clear your debt. If the sale doesn’t make more than your outstanding debt, you’ll still need to pay the remaining amount, usually via an affordable payment plan.

What professional debt advice is available?

You don’t have to go it alone. If you’re struggling with your finances and falling behind with your car repayments, seeking professional help could make all the difference.
 
Suffering in silence? That’s not our style.  
 
If you’re looking for a non-judgemental and friendly ear, check out Citizens Advice and StepChange.
 
Both organisations offer free debt advice and it’s not one-size-fits-all, they’ll take the time to understand your situation and provide tailored suggestions.
 
Trust us, they’ve heard everything before, so there’s no reason to feel embarrassed. And keep in mind that the quicker you find a debt management solution, the quicker you can get back on track.

What steps can I take to prevent this in the future?

Finance agreements are a two-way street; both you and your lender are responsible for making sure your loan is affordable.
 
While affordability checks will usually form part of your eligibility assessment, they will be based on your circumstances at the time you apply. Of course, life happens, and your situation can change. If you lose your job or your household bills skyrocket, a loan repayment that was affordable two or three years ago could quickly blow your budget.
 
That’s why it’s always worth being conservative when you budget for a car. If you can, pick a model with a repayment amount that gives you some wiggle room, just in case. Even if you can technically afford to pay more, a good rule of thumb is to make sure your monthly payment amount is no more than 10 to 15% of your take-home salary.
 
You can also reduce the amount you borrow – leaving you with smaller repayments or a shorter loan term – if you put down more money upfront. Taking some time to build up your savings so you can afford a larger deposit could help you in the long run.
 
Finally, there’s always refinancing. If your circumstances have changed and you think you might struggle to make your payments on time in the future, you can look to refinance. This is when you take out a new loan (usually with a new lender) with different terms and use it to pay off your existing finance. Your new loan could have a better APR (if your credit score has improved over time) or have a longer loan term that makes it more affordable.