What to Do If You Can't Afford Your Car Finance Repayments
The rising costs of living have compelled many people to carefully examine their monthly expenses and try to save money wherever they can. However, as the financial grip of rising electricity, food, and petrol expenses tightens, some are realising their existing financial responsibilities have become unaffordable.
If you have taken out car finance, you might be worried if your repayments will rise with the higher interest rates we're seeing, and are likely committed to making payments over possibly three to five years. But a lot can happen in that amount of time. A change of circumstance can occur quite unexpectedly. Or maybe the financial squeeze is making it difficult to meet your monthly obligations. So let's discuss what you can do if your financial situation changes and you can no longer afford to pay your car loan.
What Happens If You Can’t Afford Car Finance Anymore
Your lender will contact you if you've missed a payment, as with most forms of credit. If you continue to skip payments, they can send a default notice and initiate additional steps to collect the amount and/or retrieve the vehicle. They can also hire a debt collector or seek a county court judgement (CCJ).
That’s why if you are unable to make payments on any type of credit contract, the first thing you should do is contact your lender and discuss your circumstances. Although lenders' approaches will differ, you may be able to strike an arrangement that enables you to keep the car, by reducing the rates or maybe extending the term of the loan and paying less each month.
Once your lender has a better understanding of your current situation, they can advise you on your different choices, which will be determined by the length of time remaining on your agreement, the amount due, and the type of loan you obtained.
Your car finance provider might recommend other options that will help in keeping the car while making your repayments more affordable. They could enable you to postpone payments for a short time, or they might just be ready to prolong the loan length to minimise the cost of the monthly instalments.
Personal Contract Purchase (PCP) or Hire Purchase (HP) agreements can provide you with more choices than other types of loans. These contracts are more flexible loan agreements that could allow you to reduce your monthly payments, swap your existing car for a cheaper one, or give up your car entirely.
Can't Afford My Car Finance - Can I Refinance?
It may be possible for you to refinance your PCP or HP agreement at a cheaper interest rate with a new lender, or for a longer period of time, thus lowering your monthly instalments. However, do keep in mind that just extending the contract can result in you paying a lot more interest in the long run for your car. But if you can find a company that offers a lower interest rate than your current one, you could be saving a great deal of money.
So are you now wondering "how do you refinance your car payments?", or maybe "when can I refinance my car payments?" we have you covered and you can find all the answers to your questions in our car finance blogs. But to get you started, in order to refinance your car loan, the first thing you will need to do is to get a settlement fee from your lender. This will detail the amount of money needed to pay off your existing car loan lender. You new lender will then handle all the transfer for you.
Check your contract terms if you are thinking about getting a new loan since some providers will charge a termination fee if you pay off your car loan off early. Evaluate the prepayment penalty in relation to the possible savings or lower repayments you expect from the new car finance agreement.
Other criteria, including your credit score, will influence the new rate you could get and end up paying if you manage to refinance. However your new interest rates could be even higher than when you originally took out your loan, and this can happen as markets change, so make sure you do your research properly and shop around.
You can refinance your car at any time throughout the term of your car loan. However, just as with any other type of loan, you need to apply. This means there's no assurance that if you choose to refinance your car, you'll be approved for new financing right away.
Applying to the finance company is still required for refinancing, however, making several applications to various organisations at the same time will harm your credit score. You may inquire, browse about, and obtain quotations before applying to the vehicle finance business that offers the best price. There are several possibilities available online these days.
Can I Just Hand The Car Back?
If you purchased your car through personal contract purchase (PCP) or hire purchase (HP), you can return it to the car finance provider but only if you have paid off at least 50% of your loan. This is referred to as voluntary termination.
If you haven't paid off at least 50% of your loan yet, you'll have to pay the difference if you intend to return the car. It's also important to know that if you've paid more than half of your loan, you won't get your money back if you end the agreement and return the car.
If you bought your car with a personal loan from a bank and can't manage the payments, you'll probably have to sell it to make up the difference.
You can refinance your car at any time throughout the term of your car loan. However, just as with any other type of loan, you need to apply. This means there's no assurance that if you choose to refinance your car, you'll be approved for new financing right away.
Applying to the finance company is still required for refinancing, however, making several applications to various organisations at the same time will harm your credit score. You may inquire, browse about, and obtain quotations before applying to the vehicle finance business that offers the best price. There are several possibilities available online these days.
The Bottom Line
If you've gone behind on your car loan payments it's critical to get expert guidance on your choices. Because there are so many different forms of car finance arrangements, it can be difficult to understand how any arrears would affect you.
You cannot go to prison for failing to return a debt. If you disregard the court's directions however, it has the authority to take additional action. This is extremely unusual and would only occur as a last option if you had refused to cooperate with what the court had ordered you to do.
That’s why you should do your best to stay in contact with your lender and find an alternative. This could be refinancing, for example, which is a great option in most cases.
If you think this is a route worth taking, have a look at Carmoola's affordable refinancing offers. It's a pretty truly straightforward and easy procedure! 👍
