Life can be unpredictable, and when you sign up for a car finance agreement for three years or more, you’ve got no way of knowing what’s around the corner. If your circumstances change and your finances come under some extra pressure - maybe due to one of life’s inevitable curveballs like a family emergency or losing your job - you could suddenly find it harder to make your car finance payments.
If this happens to you, you might be able to take a payment holiday. It’s not quite as relaxing as a week’s all-inclusive in Greece, but it can give you some breathing space to get your finances back on track.
A payment holiday is when you take a break from paying your car finance payments for a little while. It’s an arrangement you agree with your lender (so please don’t just stop paying without speaking to them first!) for a temporary, agreed period.
With a payment holiday, you skip your normal car finance payments for a time - maybe a few months even - but you’ll still have to pay the balance in the future. You’ll also still be charged interest for the time you’re ‘on holiday’ so to speak.
If you’re struggling to make your regular payments, talk to your lender. They’ll discuss your options with you, and agree on a plan that suits your specific needs. Whatever you do, don’t just stop paying - this will only make your financial situation worse in the long run. Your lender will have ways they can help you, so make sure you talk to them if things are getting tight.
A payment holiday can be a lifeline if you’re going through a rough patch with your finances - but here are some things to consider before you go for it:
There are no hard and fast eligibility criteria for taking a payment holiday. All lenders will have their own policies and criteria for payment holidays, so it depends on what your individual finance company says.
To find out if you’re likely to get approved for a payment holiday, get in touch with your lender and let them know what’s going on. Explain why you’re finding it hard to pay on time, and how a payment holiday could help. They’ll also want to know when you think you’ll be able to start making your payments again.
A payment holiday is something you have to apply for, rather than a straight-up entitlement, so the lender will need a fair bit of information from you so they can decide whether to go ahead. They might ask to see your recent bank statements, proof of your income, and learn a bit about any major outgoings.
Being ‘in arrears’ on a loan means that you’ve missed some repayments, so you haven’t repaid as much as you agreed to, and you owe the lender money.
A payment holiday is a bit different, as it’s an agreed temporary arrangement with your lender. But, during your payment holiday, you might see an ‘arrears’ on your credit report, as you’re technically behind on what you’ve been contracted to pay.
When you speak to your lender about your situation, they might suggest some other options that could work better for you, rather than a payment holiday. These could include:
After your payment holiday is over, you might find that your monthly payments have gone up. This will be because you’re still charged interest for the months when you’re on a break, and that interest gets added to your total balance. If you’re still working towards the same end date as before, your repayments will likely be higher to include the extra interest.
But, if you’ve extended your contract by the same amount of time as you took your payment holiday, the repayments should be a similar amount.
Your lender should discuss this with you when you get in touch with them to talk about your situation. Taking a break to help you out during a tight few months is one thing, but you need to make sure you and your lender are clear on what happens after the holiday, too. If you’re going to be looking at higher repayments, make sure you have room for this in your budget.