I can't afford my monthly car finance payments due to coronavirus - what are my rights?

The coronavirus (Covid-19) pandemic is causing all sorts of stresses, and while the primary concern is health, financial wellbeing is also an ongoing issue. for many people. So the Financial Conduct Authority (FCA) has extended the new measures it recently introduced to help those who are struggling to keep up with car finance payments. 

It says car makers should offer people a second three-month payment holiday that could stretch into 2021 if they are experiencing temporary difficulties meeting finance or leasing payments, and that finance companies should not take steps to repossess vehicles or end contracts before 31 October this year. Customers who haven't yet requested a payment freeze or an extension to their current finance agreement also have until this date to do so. 

Recommended support includes freezing or reducing motor finance payments to a level the customer can afford, and that customers who are on 'buy now pay later' finance, and are still in the promotional period, should be offered an additional extension to that period.

"If customers can afford to return to regular repayment, or make partial payments, it is in their best interest to do so," said an FCA spokesman.

Additional guidance states that firms should not alter Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is unfair, such as recalculating PCP final 'balloon' payments based on the temporary depreciation of car prices caused by the coronavirus outbreak.

It also stipulates that finance companies should work with customers to find an appropriate solution if a car finance agreement is coming to an end and they want to keep the vehicle, but they don't have the funds to meet the balloon payment

“Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments,” said Christopher Woolard, interim Chief Executive at the FCA.  

Below we look at all the options open to those who have bought a car on finance but can no longer afford it. 

What should I do if I can’t afford to pay for my car due to coronavirus?

If you pay for your car monthly, the first thing you should do is speak to your finance provider; it is far better to be honest with them than to just default on payments, because this will affect your credit score and make it harder to get finance in future.

Now that the FCA has issued guidance on finance agreements, you should be offered a solution, such as a three-month payment holiday, that enables you to keep the car. 

What if I just want to hand the car back? 

It depends on the type of finance you have and where you are in the contract. 

If your car is financed by personal contract purchase (PCP) or hire purchase (HP), you’re allowed to hand it back to the finance company if you have already paid off 50% of the loan, including any interest and fees. However, if you’ve yet to pay off 50% of the loan, you’ll have to make up the difference. And, if you've paid off more than 50%, you won’t get that extra money back if you cancel the contract.

If you lease your car through a personal contract hire (PCH) scheme,  it’s a lot more difficult to hand it back. You can return it, but you’ll probably have to pay back any remaining money you owe on the contract. So, if you still have a year left, then the lender will expect a year’s worth of fees up front. In this instance, it’s better to contact the finance company and see what else you can arrange. 

If you used a bank loan or credit card to buy your car and can’t afford the repayments, then you’ll likely have to sell the car to cover the money you owe. 

For all the latest reviews, advice and new car deals, sign up to the What Car? newsletter here

Read more: all the latest coronavirus advice for drivers >>