Pay as you go car finance is a new form of car finance designed for drivers who may struggle to get a finance deal with mainstream lenders.
It is based on a Hire Purchase (HP) agreement which requires an initial deposit payment and then a series of monthly repayments. Like a normal HP car leasing deal, the car remains the property of the finance company until all the monthly payments are made.
The difference with pay as you go car finance is that it includes a small black box in the car, similar to a telematics device used with black box car insurance policies. Instead of the box tracking your driving style though, it acts as a payment reminder and vehicle disabler.
With these types of car finance arrangements, the black box is fitted discreetly either in the glove box or under the dashboard and connects to the car’s internal computer and is linked to the lending company. When your monthly payment is due, the black box will display a flashing red light to remind you your payment is due. At this point you may also receive a text message and/or email from your lender.
When you make your monthly payment you will get an authorisation code from the lender to input into the black box, which will turn the light green again for the month.
What if I don’t make my monthly payments?
The reason pay as you go car finance is available for drivers with bad credit ratings is because, if you do not make your monthly payment the black box will disable the vehicle so you are unable to drive it. Hence the name ‘pay as you go’ or ‘pay as you drive’ car finance.
Usually your lender will provide a 30 day period of grace for you to pay before disabling your vehicle, rather than immediately cutting you off. However, if you fail to pay your monthly fee then your vehicle will be disabled and you will be unable to drive.
Can the car be disabled while it is in use?
One of the biggest concerns with pay as you go car finance is when does the car become disabled? Obviously if you’re driving or if the car is not parked at home, it’s not very convenient if it is suddenly disabled.
Therefore the lending company will only disable the car after it has been left idle for a considerable amount of time i.e. overnight. You will also be notified by the flashing red light on the black box and by a text message from your lender before the car is disabled.
Does pay as you go car finance work?
Using a black box to remind drivers to pay each month and to disable the car if they fail to pay has been shown to reduce finance default rates by up to 500%.
This helps give lenders the confidence to offer car finance deals to people who wouldn’t normally be eligible due to their poor credit history.
For customers, using pay as you go car finance scheme is a chance to build up your credit rating if you pay your monthly fees on time. This could eventually allow you to access better car finance deals in the future.
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