Can't afford car payment? Your options explained

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

BuyaCar team
Feb 4, 2019

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 you may find that you're no longer in a position to 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, or you could find it difficult to get credit in the future.

It’s especially important to speak with your lender if you are leasing your car on a Personal Contract Hire plan. As this is a long-term rental contract that you'll have committed to, you are in their hands

You’ll have more options with Personal Contract Purchase (PCP), Hire Purchase (HP) or Conditional Sale. These are finance agreements, which are more flexible, potentially enabling you to cut your monthly payments, swap your current car for a cheaper one, or give up your vehicle altogether.

The options open to you will depend on your current 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 could cut your monthly payments, but leave you paying more in the long run for the same car.

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. 

Car retailers and lenders will then be able to give you a refinancing quote, based on the settlement fee, so you'll be able to see how much lower your monthly payments would be for the same car. 

Every quote should include the total amount payable over the full finance term. This figure shows the true cost of the agreement, helping you to decide whether it represents good value for money.

 

Part-exchange your vehicle for a cheaper car

Swapping your current car for a cheaper one can often cut your payments. This requires a settlement fee from your lender, and you'll also need to know how much your car is worth: if possible, compare valuation quotes from car retailers and buying groups.

If your car is worth more than the settlement fee:

You’re in a good position. You'll be able to sell it to a retailer or car buying group, with the agreement of your lender. The proceeds will pay off the finance, leaving a surplus, which can go towards your next car.

You'll be able to cut your monthly payments by choosing a cheaper car on a similar finance agreement.  

It's usually simpler to part-exchange your car with the same retailer that's supplying your next vehicle, but this isn't obligatory and you'll often get better value for money by shopping around.

If your car is worth less than the settlement fee

You’ll have to make up the difference. This can be done with a single payment, but won't always be affordable, as the cost can exceed £1,000 - particularly early in the term.

If your financial situation allows, you could take out negative equity finance. This adds the price of ending your finance agreement to the cost of 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, and avoid your debt spiralling out of control.

 

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 left with nothing.

  • This option is more viable if you have Hire Purchase (HP) or Conditional Sale finance because the deposit and monthly payments cover the full cost of the car. So halfway through the agreement, you'll have made half of your repayments, opening up the option of returning the vehicle under Voluntary Termination. It's important to understand that you’ll be giving up the right to own the car which would be yours if you continued 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 it takes many more monthly instalments until you've paid off half of the debt. You may not reach this point until you're close to the end of the term.
    You can top up your payments to reach the halfway point early, but this may not be affordable. Voluntary termination may also be poor value if you're approaching the end of the agreement. At this point, cars are often worth more than the settlement fee required to end the finance early. If this is the case, you could sell or part-exchange the vehicle with the agreement of your lender. The difference between the settlement fee and vehicle value can be returned to you or put towards another car.

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