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Did you know that some 9 out of every 10 new cars sold in the UK are paid for using financing? Most of these purchases are made via personal contract plans. These are where you put down an initial deposit and then pay monthly rent on the vehicle for two or three years. Unfortunately, with many people facing financial problems due to the coronavirus pandemic, some drivers are finding it hard to keep up repayments on their motors. Car finance payment holidays could be a lifeline for them.
But is this financial concession widely available? The good news is that some car manufacturers are offering assistance to customers who are struggling.
The help they are offering isn’t entirely selfless. If large numbers of people can’t pay their car finance, more cars will be returned than can be sold on. That would lose them money.
What are car finance payment holidays?
It may seem an obvious question, but it is worth clarifying how a payment holiday works. In a nutshell, your finance company (often the credit arm of a car manufacturer) agrees that you will stop your monthly payments for an agreed period of time. At the end of the period, the lender will adjust your regular payments to cover the shortfall. These agreements are very much like the mortgage holidays you may have been reading about.
Car manufacturers are already offering payment holidays
According to the Guardian, Ford and Volkswagen (which also owns Audi, Skoda and Seat), have introduced help for customers experiencing difficulties. VW is offering a ‘breathing space’ of up to 60 days, during which it won’t chase payments or apply charges, fees or late payment interest. After this period, it will work with those affected to agree an affordable plan to cover the missed payments.
Car website Parkers has more detail on which manufacturers are offering help. Ford is offering a similar package to Volkswagen. Hyundai and Kia have said they can offer payment holidays. Honda will consider this as the pandemic continues.
You can find a fuller list of car makers and the help they are offering on the Parkers website.
What about commercial vehicles?
There’s currently less clarity about commercial vehicles and payment holidays. The British Vehicle Leasing and Rental Association has asked the chancellor to support firms that are struggling with vehicle finance. In the absence of that help, the best advice is to contact your finance company to discuss options. Parkers says that ‘it should be perfectly possible for many people to set up… a payment holiday if their needs require it.’
What to do if you’re struggling with vehicle finance
First of all, speak to your finance provider. Remember that many lenders are effectively owned by manufacturers, who are keen to avoid a glut of vehicles being handed back to them. For this reason, most should be willing to consider concessions like payment holidays.
If you want to hand back your car instead, be careful. Depending on the type of finance agreement you have, this could leave you with another bill. If you have a personal contract purchase (PCP) or hire purchase (HP) agreement, you can normally give the car back if you’ve paid off 50% of the loan. You’ll need to pay the difference if you don’t.
Alternatively, if you have a personal contract hire (PCH) agreement, then you’ll probably have to pay the remainder of your contract in full. In these instances, it’s much wiser to speak to your lender to come to an arrangement. What Car? has a useful page on your rights if you can’t afford repayments.
Hopefully, if you do find yourself in difficulties, you’ll be able to come to an agreement with your lender and will be able to resume normal payments very soon. If you’d like to talk through your options with one of our accountants, please do get in touch.
About Ben Locker
Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.