If you’re finding it hard to keep up with your car finance payments, you’re not alone, and you have more options than you might think. Lenders have to help customers who are struggling, and the law gives you protections against your car being taken back without warning. The most important step is to act early, before you miss a payment if you can. This guide explains your options.
In short
Contact your lender as soon as you think you’ll struggle. Lenders must treat you fairly and consider options such as a temporary reduced payment or a payment break. You may also be able to hand the car back with voluntary termination once you’ve paid half the total amount payable. If you’ve paid at least a third, the lender usually needs a court order to take the car back. Free debt advice is available.
Act early
Contact your lender as soon as you know you’ll have trouble, ideally before you miss a payment. Missing payments without talking to the lender can lead to fees, damage to your credit file, a default notice and, eventually, the car being taken back.
When you call, it helps to have:
- your agreement number
- a simple budget showing your income and essential spending
- an idea of what you could afford to pay, and for how long
What your lender must do
Lenders are regulated by the Financial Conduct Authority and must treat customers in financial difficulty with forbearance and due consideration. Rules that came into force in November 2024 strengthened this. Lenders must:
- consider your individual circumstances
- consider options that are suitable for you, which may include a temporary reduction in payments, a payment break, or waiving some interest or charges
- tell you about free, impartial debt advice
- explain how any arrangement could affect your credit file
- give clear information about voluntary termination
- treat repossession as a last resort, after other reasonable options have been tried
Any arrangement may still be recorded on your credit file, but it’s usually much less damaging than missed payments and a default.
Your options
| Option | How it works | Things to know |
|---|---|---|
| Temporary arrangement | Pay less, or nothing, for an agreed period | Arrears may build up and be shown on your credit file |
| Extend the term | Spread what’s left over more months | Lower payments, but usually more interest overall |
| Voluntary termination | Hand the car back once you’ve paid half the total amount payable | A legal right on regulated HP and PCP. You may need to pay up to half, plus damage charges |
| Settle early | Pay off what you owe, usually with an interest rebate | Only possible if you have the money, or can sell the car for enough |
| Sell the car | Sell it, clear the finance and buy something cheaper | You need the lender’s settlement figure, and the car must be worth more than you owe |
| Voluntary surrender | Return the car without terminating | The car is sold and you owe the shortfall, which can be more than with voluntary termination |
Important
Voluntary surrender and voluntary termination sound similar but aren’t the same. With voluntary termination, what you owe is capped at half the total amount payable, plus damage charges. With voluntary surrender, the car is usually sold at auction and you can owe everything that’s left. If you want to hand the car back, ask the lender for voluntary termination in writing.
Can the lender take my car back?
With regulated hire purchase and PCP agreements, the lender owns the car until you’ve paid everything, so it can take the car back if you break the agreement. But the law protects you:
- The lender must send you a default notice before it can end the agreement or take the car back. The notice tells you what you need to do and by when.
- Once you’ve paid at least a third of the total price, the car becomes “protected goods”. The lender then usually needs a court order to take it back, unless you agree to hand it over (Consumer Credit Act, section 90).
- The lender can’t enter your home to take the car without your permission or a court order.
- You can ask the court for more time to pay, called a time order, after receiving an arrears or default notice.
Your agreement includes a box headed “Repossession: your rights”, which explains this for your agreement.
Why this matters
Once a default notice has expired and the lender has ended the agreement, you can lose the right to voluntary termination. If you’re thinking about handing the car back, do it before then.
Free debt advice
You don’t have to sort this out alone. These organisations give free, confidential advice, and can help you work out a budget and talk to your lenders:
- MoneyHelper, the government-backed money guidance service
- StepChange
- National Debtline
- Citizens Advice
Be careful with companies that charge to deal with your debts or promise to write them off. Free advice is available for everything they offer.
If you’re also worried about the car being taken back because you rely on it for work or care, tell your lender. They must take your circumstances into account. If you think your lender hasn’t treated you fairly, you can complain, and then go to the Financial Ombudsman Service for free.
Struggling with car finance FAQs
Can I get a payment holiday on my car finance?
There’s no automatic right to one, but your lender must consider options that suit your situation, which may include a short payment break or reduced payments. Ask them as early as you can.
What happens if I miss a car finance payment?
You may be charged a late payment fee, and the missed payment will usually be reported to the credit reference agencies. If you keep missing payments, the lender can send a default notice and may end the agreement.
Can I just give the car back?
If you’ve paid at least half the total amount payable, you can usually hand the car back through voluntary termination and owe nothing more, except damage charges. If you’ve paid less, you’d need to pay the difference to reach half.
Will my car be repossessed?
Repossession should be a last resort. If you’ve paid at least a third of the total price, the lender usually needs a court order. Talking to your lender and getting debt advice early gives you the best chance of keeping control.
Does voluntary termination affect my credit score?
Voluntary termination is a legal right and shouldn’t be recorded as a default. Some lenders mark the account as terminated, which future lenders may see. Missed payments and defaults do much more damage.