What happens if you miss a car finance payment?

It's not always easy to keep up with car finance repayments. Get a clear-eyed look at what could happen if you miss a payment.

Car finance comes with benefits that few drivers would deny. You pay less upfront and then make predictable payments until the term is over. You can buy a car you might not be able to afford upfront. And as you make the repayments, you're breathing life into your credit score.

These benefits, however, come with strings attached. After all, a car finance agreement is more than just an agreement – it's a legally binding contract.

This means that keeping to your car finance payments matters – and that missing a payment can lead to a more serious and expensive problem.

The good news, however, is that a single missed payment doesn't spell disaster.

In this article, we take a closer look at what happens if you miss a car finance payment.

What happens if my payment is a few days late?

If your payment is a few days late, most lenders will contact you and charge you a late payment fee. It won't, however, go on your credit file until it's a month overdue.

What happens if you miss a single payment?

If you miss a single payment, the lender will typically charge a late payment fee and ask you to make the payment. If you're experiencing financial difficulties, they may offer payment arrangements to make the payment more manageable.

What happens if you miss multiple payments?

It's when you miss multiple payments that the issue becomes serious. Additional fees and interest are likely to be added and the missed payments will be put on your credit file. This can negatively affect your chances of getting credit in future.

After two or three months, the lender is likely to issue a default notice. This is a formal warning letter stating that you've persistently missed payments and broken the terms of your agreement.

A default notice is your final chance to catch up on missed payments before the lender takes legal action.



Can the lender take the car back if I miss a car finance payment?

This depends on the type of finance agreement and how much you've already paid back.

Hire purchase (HP) and personal contract purchase (PCP) agreements

With these agreements, the lender may be able to repossess the car if you've paid less than a third of the total payable amount.

If you've paid more than a third, however, the lender will typically need a court order before repossessing the car.

Personal loans

If you've missed a payment or payments on a personal loan, you own the car outright and the loan isn't secured against the car. In other words, the car can't be seized as collateral if you fail to pay the money back.

That said, repossession could occur if the lender gets a court judgment against you and you still don't pay the money back.

I can't afford my car finance payments: what should I do?

If you can't afford your car finance payments, you should notify your lender as soon as possible. Ignoring the problem will only make the situation worse. It will also increase the risk of serious consequences, such as a default, repossession and a poor credit score.

Generally speaking, lenders are far more willing to help you if you contact them sooner rather than later.

They may offer you alternative payment arrangements to help you deal with your financial situation. This could be:

• A temporary payment agreement
  
• Smaller payments over a longer period
• Reduced payments for an agreed time
• Payment deferral (allowing more time to make the payment)
  
  

If you're experiencing difficulties with debt, you could approach a charity for advice. Prominent debt charities in the UK include StepChange, National Debtline and Citizens Advice.

If you've borrowed money for the car as part of an HP or PCP arrangement, you could also consider what's known as voluntary termination.

What is voluntary termination and how does it work?

If you've taken out an HP or PCP arrangement and can't pay the money back, you may have the right to end the agreement and return the car.

This can only happen, however, on two conditions:

1. You must have paid back half of the total payable amount (including fees and interest).
2. The car needs to be in a reasonable condition.
   
   

Another possibility is to sell the car – although this, too, depends on a couple of factors.

Can I sell my car if I can't make my car finance payments?

It may be possible to get a settlement figure for the car from the lender. The car can then be sold and the money used to clear some or all of the finance.

This depends, however, on the balance of your payments and the value of the car.

It's important to note that selling the car should always be done in line with the lender's requirements. Again, discussing your options with the lender sooner rather than later is the best thing you can do to minimise the chance of more serious consequences.

What happens if I miss a personal loan payment?

Personal loan payments differ from car finance agreements because the lender in a personal loan agreement typically doesn't have a direct claim over the car. They can only claim the money that needs to be paid back.

If you miss a payment, the lender will usually contact you to ask for payment. They may charge a late payment fee. If you don't pay, they may report the payment to credit reference agencies. This will negatively affect your credit score.

If you continue to miss payments, the lender will issue a default notice demanding repayment of the missed payments. As a last resort, they may sell or pass on the debt to a debt collection agency or take court action to recover the money.

Zoomo is a specialist bad-credit car finance broker in Newcastle, UK. We work with a panel of trusted lenders to secure car finance agreements, no matter your credit history. Why not apply for finance online today? It only takes a few minutes.