If you are at risk of missing car finance payments, contact your lender immediately. Under FCA rules, lenders must treat customers in financial difficulty fairly and must consider all reasonable options before taking enforcement action. Do not wait until payments are missed.
Quick answer
If you cannot keep up with car finance payments, the most important thing is to contact your lender before you miss a payment, not after. Under FCA rules, lenders must deal with customers in financial difficulty fairly - and the earlier you engage, the more options remain available. Do not simply stop paying without communication. Your rights under the Consumer Credit Act also give you specific options including voluntary termination once 50% of the agreement is paid.
Act Early - The Options Are Better Before You Miss Payments
Once you have missed one or more payments, your negotiating position weakens and your credit record is already affected. If you can see that upcoming payments will be a problem:
- Contact your lender immediately and explain your situation
- Ask what options they have for temporary difficulty - payment deferrals, term extensions, short-term arrangements
- Get any arrangement agreed in writing
- Contact a free debt adviser if you need help navigating the conversation
Your Rights: Voluntary Termination
Under the Consumer Credit Act 1974, HP and PCP customers have the right to voluntarily terminate the agreement and return the car - provided they have paid at least 50% of the total amount payable. If you exercise this right correctly:
- You return the car
- No further payments are due (assuming the car meets fair wear and tear standards)
- The agreement ends with no default registered for non-payment
Check your current payment total against the total amount payable in your agreement documents to see if you have reached the 50% threshold. If not, calculate how much more you need to pay to reach it.
If Losing the Car Is Unavoidable
If you cannot retain the car and cannot meet the 50% threshold for voluntary termination, consider whether selling the car privately - after getting a settlement figure and confirming the car is worth more than it - would be a better outcome than repossession. Repossession has a more severe impact on your credit file and leaves you with less control over the outcome.
Car Finance and Priority Debts
From a debt management perspective, car finance is categorised as a non-priority debt compared to mortgage/rent, council tax, utility bills, and court fines. However, losing your car may have serious practical consequences if you rely on it for work. A debt adviser can help you prioritise your obligations and negotiate with creditors accordingly.
Frequently Asked Questions
Missing payments results in: default notices from the lender, damage to your credit file, and ultimately repossession of the vehicle. For HP and PCP agreements, if you have paid less than one third of the total amount payable, the lender can repossess the car without a court order. If you have paid more than a third, they need to apply to court first (a "protected goods" provision under the Consumer Credit Act). Even in a protected goods position, repossession remains a likely outcome if arrears are not addressed.
Under the Consumer Credit Act, HP and PCP customers have the right to voluntarily terminate the agreement once they have paid 50% of the total amount payable. If you have not yet reached 50%, you may still be able to negotiate voluntary termination with the lender at a lower threshold - this is at the lender's discretion. Handing the car back through formal voluntary termination (not abandonment) should be done in writing and with the car in a condition that meets fair wear and tear standards.
Payment holidays (or payment deferrals) can be useful if your financial difficulty is genuinely temporary. Before agreeing, understand: interest typically continues to accrue during the holiday, increasing the total amount owed; the deferred amount must be repaid, either as a lump sum or by extending the term or increasing future payments; and the effect on your credit record (some deferrals are reported and some are not - confirm with your lender). Do not take a payment holiday if you cannot see a clear path to resuming normal payments.
If the car is worth more than the outstanding settlement figure, selling privately can clear the finance and leave you with a surplus. Get a settlement figure from your lender first. If the car is worth less than the settlement figure, you would need to make up the shortfall from other funds. Selling a car with outstanding HP or PCP finance without settling the finance is fraudulent. A BVRLA-approved HPI check will reveal whether a car has outstanding finance, which is why private buyers carry out this check.
Free, impartial debt advice is available from StepChange and MoneyHelper. They can help you prioritise debts (car finance is not a priority debt in the same tier as housing, council tax, or utility bills, but it has significant consequences including loss of transport). They can also help you communicate with creditors effectively.
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