Can't afford car payment?

Don't get into difficulties: the solutions available when you can't afford car payments

BuyaCar team
Jun 30, 2018

It’s impossible to predict what’s going to happen tomorrow, let alone over the three to four years of a typical car finance agreement.

Circumstances often change, and it’s not uncommon to find that you can’t afford your car payments.

In this case, it’s vital to take action quickly and speak to the finance company, as it may be possible to work out an affordable arrangement. Don’t leave it to the last minute or start to miss your payments.

It’s especially important if you are leasing your car on a Personal Contract Hire plan. As this is a long-term rental agreement, you are in the hands of the lender, who you will have committed to pay for the full term.

You’ll have more options with a Personal Contract Purchase (PCP), Hire Purchase (HP) or Conditional Sale finance. These options can help you to cut your monthly payments, change your current car for a cheaper one, or give up your vehicle altogether

The availability of each will depend on your car, the outstanding amount of finance and your financial situation. We’ve listed some of the common choices below.

Refinance for more affordable car payments

It might be possible to refinance a PCP or HP agreement at a lower interest rate, or over a longer term, which would cut your monthly payments. Beware that extending the length of a finance agreement will usually leave you paying more for your car overall.

You’ll need a settlement fee from your lender, which is the amount of money required to buy the car immediately and end your finance agreement.

You can then ask other finance companies and lenders for a quote, based on that settlement fee, to see if they can reduce your monthly payments.


Part-exchange your vehicle for a cheaper car

Swapping your current car for a cheaper one can often cut your payments. Once again, you’ll need a settlement fee from your lender, then a part-exchange quote for your current vehicle from a car retailer.

If your car is worth more than the settlement fee, then you’re in a good position. Part-exchanging it will pay off the settlement fee and leave a surplus, which can be used as a deposit on a finance agreement for your next car.

You’ll cut your monthly payments by choosing a cheaper car on a similar finance agreement.

If your current car is worth less than the settlement fee, then you’ll have to pay your lender the difference. Alternatively, if your financial situation allows, you could take out negative equity finance, which adds the extra cost to the finance for your next car. You’ll then pay both off in monthly instalments.

In this situation, you may need to choose a car that’s considerably cheaper than your existing one to ensure that you reduce your monthly payments.


Sell your car

If you can do without your car, then it’s usually possible to sell it with the permission of your lender. The proceeds are typically paid straight to the lender but you’ll need to top them up if they are less than the amount in the settlement fee. You can read more in our guide to selling a PCP car


Voluntary termination

Once you’ve paid off half of what you owe, the law allows you to return your car with nothing more to pay. However, you’re also not left with anything.

This option is more viable if you have Hire Purchase (HP) or Conditional Sale finance because you pay for the entire cost of the car during the term. Once you reach the halfway point, you can avoid further substantial payments by returning the vehicle under Voluntary Termination. You’ll be giving up the right to own the car which you would have by continuing payments to the end.

Personal Contract Purchase (PCP) finance defers a large amount of the car’s cost until the end of the agreement, so you may not pay off half of the total amount owed until you are close to making your final monthly payment.

This can make voluntary termination poor value: by continuing to the end, you’ll have much more flexibility, including the option to refinance the car and - depending on its value - to part-exchange it for another model.

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