Arrears: Car Finance Jargon Busters

What does it mean to be in arrears? 🤔 If it’s your first time taking out a loan or financing a car, it’s crucial to know the details of your monthly payments such as the amount and the due dates. Then you won’t have late payments and therefore be in arrears. When you start falling behind on your repayments, even by a few days, then you are already in arrears. It can also sometimes be expressed as the number of payments you’ve missed or the amount you owe. Read more below in this car finance jargon buster guide. 

What it Means to be in Arrears

When you get car finance, it means you’re borrowing money from a lender like a bank or a car finance company to buy a car. The cost of buying a car is then spread over a number of months like a 36-month term, where you pay a certain amount every month. 

If, for example, your financial situation changes, and you find yourself having trouble making payments on time, then you will be "in arrears". It means your payments are already past their due dates. As a borrower, this is something that you have to avoid as much as possible because it can greatly affect your ability to secure a loan in the future. 

How Being in Arrears Affects Your Credit Score

Borrowers who fall into arrears have different reasons why they were not able to pay their loans on time. Some may have simply forgotten about their due dates while others encountered some financial difficulties. Whatever the reason might be, being in arrears can affect the borrower’s credit score negatively. 

In most cases, one or two payments that were paid late aren’t something that you should be too worried about. However, when there are two consecutive payments you haven’t paid, then that will be recorded in your credit report and pull down your credit score

If this is something that continues to happen, then it will become difficult for you to get credit from lenders in future loan applications because it shows that you are not committed to paying your financial obligations on time. 

What to Do if You’re in Arrears

If you find that you’re unable to pay your loan on time, it’s vital to evaluate your options on how you can get back on track when it comes to making your payments at the soonest time possible. If you’re in a difficult situation and can’t pay your arrears, the best thing to do is to get in touch with the car finance company and be honest about your circumstances. 

Most lenders would help you by coming up with a payment plan, so you can manage to repay the loan. For example, the car finance company may reduce the amount you have to pay temporarily so that you can afford to make your payments. 

Some may even freeze your payments for a while, so that you’ll have the opportunity to bounce back financially. Bear in mind that these examples may differ depending on the car finance company and the type of agreement you have with them. 

Consequences of Defaulting on a Loan

If you do not contact your car finance company, or if you still can’t make payments even if you were given an alternative payment plan, then you will be handed a default notice. This usually happens when you’ve missed three payments or more. And expect late fees to be added to your debt.

When you default on a loan, the car finance company can take legal action, so they can collect the money you owe them. With a car finance agreement, your car is actually owned by the car finance company, so the lender can repossess the vehicle or issue a County Court Judgment.

Where possible, don’t wait for these things to happen because they can affect your credit score a great deal. It will also make it hard for you to secure credit in the future. CCJs will stay on your credit report for a long time and lenders will be able to see them if you apply for a loan. They will see you as a high-risk borrower and might not approve your application. 

Car Finance Payment Protection Insurance

With payment protection insurance (PPI), your monthly car finance repayments will be covered if you find yourself unable to pay them because you got sick or lost your job. PPIs only cover one loan and if you can’t pay your obligations, the insurer will be the one to pay for them for a specific period. Often, this insurance policy is only short-term, but it’s worth considering if you are unsure of your future security and want to still be able to make payments even if your financial circumstances change.

Can I Take a Payment Holiday on My Car Finance?

There’s no sure way to know whether you can take a payment holiday on your monthly car finance payments. If you think you need one, then the best thing to do is to talk to your car finance company so that they can advise you on what to do, answer your questions, and assist you so you can still make repayments. 

A payment holiday is a one-month break from making repayments. If you’re having trouble paying on time, you can request a car finance payment holiday so you can have time to iron out your finances and prepare the money you need for the next payment. 

Can Someone Takeover My Car Finance Payments?

The short answer to this question is no, you cannot transfer your contract to someone else and have that person pay your loan. When the car finance company assessed your application for car finance, they evaluated your specific financial situation and used that to draft the agreement between the lender and borrower. It’s not possible to simply transfer the agreement to someone else because the contract has been specifically drafted for you and not another person. 


If you’re currently having trouble making payments on time, get in touch with your car finance company, or any other lender,  as soon as possible. Don’t wait for things to get worse. The sooner they know about your situation, the more they can provide assistance so you won’t be in arrears or reach a point where you will be issued a CCJ. Here at Carmoola we have a friendly and understanding team on hand who will help you with any questions about your loan, and help you deal with such a situation. 😀 Simply contact us. And if you are wondering whether you can comfortably manage car finance, you might find our blog on affordability helpful.