What happens if I don't pay my car finance?
If you're struggling to pay or can no longer afford car finance, the best thing to do is contact your lender. Not paying your car finance can lead to issues.
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We know that circumstances change and there might be times when paying for your car finance becomes a struggle. The best thing to do is contact your lender at the first sign of trouble so it knows what’s going on – it can help you find a solution.
All lenders will have their own policy that details how they can handle unpaid car finance, so your options will differ depending on your lender and your circumstances. There will usually be a range of options that can help if you can’t make your payments.
For example, if you’re having a rough month and know you won't be able to make one payment, your lender may be able to offer you an extension or change your payment dates.
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What happens if I don’t pay my car finance?
If you don’t pay for your car finance agreement, you’ll likely run into some issues with your lender. As you signed an agreement to pay back the money you owe from your car, missing payments will be breaking your contract.
Lenders will be in touch if they see you’ve missed a payment to discuss your circumstances and what can be done to help you continue repaying the loan.
If you continue to miss payments and don’t speak with your car finance provider about a way to move forward, you’ll be sent an arrears notice telling you how much money is owed. If you can't afford to make these payments, the lender may begin taking steps to regain possession of the vehicle.
Missing payments on your Hire Purchase or Personal Contract Purchase car finance will also hurt your credit score, so it’s worth getting in touch before your payment deadline if you know you’re going to struggle.
Repossessing the car is always the finance company’s last resort, so it will work with you to try and avoid this.
For many people, the rising cost of living is making keeping on top of payments harder, but there are some ways you might be able to make this easier.
Read advice for dealing with the rising cost of living from the Financial Conduct Authority
How will late car finance payments affect my credit score?
While car finance and paying on time can improve your credit score, missing payments can cause damage. Your credit score is a representation of your credit history, so any missed payments or unpaid debt can contribute towards a bad credit score.
When you enter into a car finance agreement, each month the lender will report if you made your payment and if it was on time. If the lender can consistently report that you’ve kept your end of the bargain and made your payments on time, this could boost your credit score.
On the other hand, late or missing payments will hurt your credit score and will stay on your credit report for six years. If you do think you’re going to miss a payment or be late, it’s important to contact your lender so they can help you find an alternative solution.
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I have car finance and can't afford it - what can I do?
If you’re in a situation where you don’t have the money to pay for your car finance, the worst thing you can do is ignore the situation. Not paying your finance agreement is a surefire way to rack up a bad credit report and make it harder to borrow money in the future. It’s important to be open and honest about your situation so your finance company can help you out.
Who can help if I can’t afford my car finance payments?
Citizens Advice can help if you’re struggling to manage your car finance payments. It offers free advice on managing debts for free.
StepChange is a free debt helpline that can also offer advice if you can’t make your car finance payments. It could help you put together a debt management plan, and has handy calculators online to help you keep track of what you owe.
What should my next steps be if I can't pay?
As soon as you realise you can’t afford your car finance, you should contact your lender straight away. If you've already missed a payment, you should reach out to your lender as it might be able to give you more time to come up with the funds.
Once you’ve let your lender know that you can’t afford the payment, you may be able to work something out. Your options will depend on whether you just need a month to get back on your feet, or you know you won't be able to afford the car finance at all from now on.
How is a car repossessed if you can’t pay your finance?
If you can’t pay your car finance and haven't sorted an alternative solution, your car will be at risk of being repossessed. This means the finance company will take back your car, as it technically owns it until your finance balance is paid.
The finance company will only repossess your car as a last resort and will work with you beforehand to try and find an alternative solution.
In the UK, your car can be repossessed without a court order if you’ve paid less than a third of the total amount owed. If you’ve paid more and your car is due to be repossessed, you’ll usually be invited to attend a court hearing where you could be granted a ‘Time Order’, which needs to be applied for. This will give you a longer period to try and cover the missed payments and continue with the finance arrangement.
There’s some helpful information on being taken to court for debts on the Citizen’s Advice website.
If your car is repossessed, it'll likely be sold off at auction for less than full value. That means there might not be enough money to cover your debt with the finance company and you may still owe money.
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