FCA Proposes 3-Month Payment Holiday for Those Who Can’t Make Car Finance Payments

What happens if you can’t pay your car finance because of the Coronavirus pandemic? Thankfully, lenders are helping motorists whose finances have been impacted due to Covid-19 by freezing payments.

A woman wearing a mask and clearing her steering wheel

Over the last few months, the coronavirus outbreak has had such a hit on people’s finances that lenders have had to put three-month payment holidays in place for those who have to repay a mortgage, loan and/or credit card debt.

Additionally, the government has created and implemented financial schemes to help workers and the self-employed, and MOTs have been extended to help people who’ve been affected by covid-19.

But, with motorists currently owing a total of £48billion in car finance, is help available for those who may be struggling to pay off their car finance as a result of covid-19?

And what about people who have other credit products to pay off, such as payday loans and buy-now-pay-later agreements?

Thankfully, on Friday 17th April 2020, the Financial Conduct Authority (FCA) proposed a set of measures, which are being enforced by the government, to help consumers who have been financially affected by the coronavirus pandemic and are unable to make their motor finance payments and/or any other credit commitments.

What has the FCA proposed?

Prior to the FCA’s proposal, lenders had the choice as to whether or not payment holidays would be provided to customers, depending on the person’s individual case.

The regulating body has now announced, however, that it expects lenders and companies to give a 3-month payment holiday to their customers who are currently unable to keep up with their monthly finance or leasing payments because of the coronavirus pandemic.

The interest on your loan or finance agreement will not be frozen, though, and will need to be paid back on top of your repayments when the relief period is over. Make sure you check the terms of this with your provider/finance company if you're unsure.

In normal circumstances, if motorists do not meet their monthly payments, the firm with which they have a contract has the right to cancel the agreement or, in some cases, take the vehicle off you (repossess it).

However, during these unprecedented times, the FCA has said that companies should not look to end their customers’ contracts or repossess the vehicle if they have been directly affected by coronavirus and are experiencing financial difficulty temporarily.

The FCA’s proposals have been consulted by lenders, who are expected to follow the new measures from Monday 27th April.

Personal contract purchase (PCP) agreements

A PCP finance agreement is a flexible way of purchasing a brand-new car, as it gives the driver three options once the contract has come to an end; they can purchase the car with a balloon payment (meaning they have full ownership of the vehicle), exchange the vehicle for a brand new one and start another contract, or they can simply walk away from the deal and look elsewhere for a new vehicle if they wish.

For companies who have customers with PCP agreements, the FCA has announced the following:

  • Companies are expected to act fairly, and any amendments made to customers' contracts should also be fair - i.e. they should not use temporary depreciation of car prices caused by the coronavirus outbreak to recalculate the value of the final balloon payment.
  • Companies are expected to work out necessary measures and solutions with customers who are unable to cover the final balloon payment at the end of the contract because of coronavirus-related financial difficulties.

What about interest?

It is important to note that a payment holiday is unlikely to write off any interest you were paying on top, so keep in mind that you might have to make higher repayments (to account for the interest) when the payment holiday finishes.

What car finance firms are offering payment holidays?

As an additional service, Lloyd’s Banking Group offers car finance deals via their company Black Horse. The bank said that over 50,000 payment holidays have been provided to customers who are currently struggling financially as a direct result of the coronavirus outbreak.

Car manufacturer Volkswagen is also currently offering ‘breathing space’ to customers who have finance contracts with them, which means they will not chase customers for payments for up to 60 days if they have been financially hit by Covid-19.

Whatever your situation, the best thing to do is to contact your car finance lender as soon as possible to discuss the ways in which they can help you.

The Finance and Leasing Association (FLA) - What’s been said?

Head of motor finance at the FLA, Adrian Dally, stated that: “During this unprecedented period, every lender has recognised that forbearance is a vital bridge for customers whose income has been disrupted, and the industry has committed significant resource, human and financial, to meeting requests for support.”

The FLA has also previously stated that “if you are a customer suffering financial difficulties or anticipating payment problems because of coronavirus, do get in touch with your lender as soon as possible.

“The solutions involved will vary from lender to lender and customer to customer, but they’re there to help, and will find an answer that best suits your circumstances.”

Payday loans and high-cost credit

As well as giving people a 3-month payment holiday on their car finance agreement, the FCA has made sure that the following credit agreements also get relief:

  • Payday loans: One-month payment holiday for customers (you will not accrue more interest during this period.
  • Buy-now-pay-later: 3-month payment holidays for customers affected by coronavirus (interest will accrue).
  • Rent-to-own: 3-month payment freeze (interest will accrue).
  • Pawnbroking: Customers can have a 3-month payment holiday and their redemption period can be extended during this period (interest will accrue).

I can’t afford my credit payments due to Coronavirus - What next?

If you are struggling to keep up with your car finance payments or payday loan, it is essential that you contact your provider/lender straight away, as stated by the FLA above. They will be very aware of the current situation and will have measures in place ready to help you.

For those who may be struggling to keep up with other financial commitments during the outbreak, read our useful guides below:

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