The COVID-19 crisis has left millions struggling to keep up with their financial commitments. Car finance payments are no exception to the rule, which due to major reductions in income are causing issues for many motorists.
Thankfully, most responsible lenders have complied with FCA instructions regarding on-demand payment holidays. This translates to the option of suspending car repayments for three or six months, providing a certain amount of breathing room for those struggling financially.
The FCA has instructed all car finance companies and dealerships to comply with the payment holiday requirement, though the payment break isn’t offered automatically – it needs to be requested.
But what are the options available if a car payment holiday proves insufficient? If you’re still likely to struggle after a repayment break of 3 to 6 months, what can you do to ensure you keep up with your commitments?
There are alternative options to an extended payment holiday to explore, which should be discussed with your lender at the earliest possible stage. A few examples of which that may prove helpful are as follows:
In all likelihood, your lender will be more than happy to discuss lower monthly payments to help you keep up with your obligations. This is almost always preferable to allowing a car finance customer to fall into arrears, or default on their payment obligations entirely. Speak to your lender and discuss what kind of monthly repayment would suit your current financial situation. You can then work together on a short-term or long-term solution accordingly.
This is where the customer spends a period of time paying only the interest (and applicable charges) on the loan taken out to buy the vehicle. You continue to repay the monthly interest on the loan, though the loan balance itself remains unpaid. When you find yourself in a stronger financial position at some point in the future, you then return to paying off the loan as normal – minus the interest, or at a new lower rate of interest.
Some car finance companies use systems that will not allow customers to pay zero for more than a month or two, without it taking a toll on their credit score. In which case, it may be possible to offer small token payments to keep things ticking over – anything you can afford that’s better than nothing at all, an option worth discussing with your car finance provider.
Lastly, the ‘nuclear’ option (which most service providers would rather avoid) is to request to return the vehicle and put an end to your repayment obligations. As this is an eventuality that doesn’t work in favour of the borrower or the lender, the service provider will usually do everything within their power to prevent this from happening. Just as long as you contact your lender at the earliest possible stage, chances are they’ll be more than happy to discuss a mutually amicable agreement to help you keep up with your repayments.