The impact of Corona Virus (COVID-19) has hit everyone hard and people with Car finance are finally getting the same support as other finance products such as mortgages and credit cards.
The Financial Conduct Authority have brought in measures to protect people who have car finance from the economic effects of Corona virus (COVID-19) to fall in line with mortgages and credit cards. The Financial Conduct Authority have said car finance companies must offer a three-month payment freeze and should not repossess vehicles if customers are facing financial difficulties because of the coronavirus.
We are very aware of the continued struggle people are facing as a result of the pandemic,” said Christopher Woolard, the interim chief executive at the FCA. “If a payment freeze isn’t in the customer’s interests, firms should offer an alternative solution, potentially including the waiving of interest and charges or rescheduling the term of the loan. These measures will provide much-needed relief to consumers during these difficult times.” The FCA said motor finance firms should not take steps to end agreements, repossess vehicles or change contracts “in a way that is unfair”
Examples include using the temporary drop in car prices caused by the virus lockdown to recalculate “balloon payments” at the end of a contract.
There are growing concerns that some consumers in the UK’s £75bn car loan market will not be able to cover their monthly vehicle repayments.
What type of payments can be frozen?
The UK’s car loan market includes 6.5m vehicles financed through leasing deals.
The most common car purchase method is a personal contract plan, known as a PCP, where a buyer pays a deposit and then rents the vehicle for two to three years at a monthly cost. This will be what the majority of you will be looking at.
The payment freeze does apply to all types of car finance including Contract Hire and Hire Purchase and many of the lenders have set up online portals do allow you to request a freeze straight away.
How will this affect my future payments?
It is important to note that you will still owe the money and as you will be extending your payment term you are going to be paying more interest in the future. This is just to help in desperate needs for those that are going through extreme difficulty paying for their cars.
Will it affect my credit score?
There has been general guidance to say measures put in place around the COVID-19 situation such as payment holidays should not be recorded on a person’s credit file.
When should i use this option?
We would advise to continue to make payments if you can and only use this if you are really in need of help. It would also be a good idea to talk over your options with your finance company or with an expert because there could be better alternatives such as changing a payment date or a voluntary termination where you can hand the car back. See more on voluntary terminations here.
Extending my agreement
Some companies are allowing you to extend agreements that are coming to an end to give you an opportunity to sort out a new vehicle or decide what you want to do next. Contact your finance company to discuss these details
Please see a list of the major car finance houses that have online portals. It is imperative that you are in difficulty you do contact your finance provider immediately.