What can I do if I can’t afford my car finance?

If your financial circumstances have changed and you are struggling to afford your car finance, there are several possible options you can take.

The one that is right for you will depend on your individual situation, the type of finance you have, and how much you have left to pay on your agreement.

Read on to find out what could happen if you miss a payment and what you can do if you’re struggling to afford your car finance.

What happens if I can’t afford my car finance payment?

Missing even one car payment can have serious knock-on effects on your financial circumstances.

So, whether you miss a payment in a tough month because you want to prioritise other costs or debts, get to your repayment date and find you are overdrawn, or simply forget to make a repayment – here’s what could happen:

• You might face a late payment fee.
• The lender will contact you about the missed payment(s).
• Interest charges could accumulate on your debt.
• You could have a mark put on your credit report, which could stay there for at least six years.
• If you keep failing to repay the loan, the lender could repossess your car. Lenders won’t need a court order for this if you’ve repaid less than one third of the total amount payable.

If your credit history has been negatively impacted, read our guide to rebuilding your credit history for more information.

What should I do if I can’t afford my car finance?

If you can’t afford your car finance payments, the worst thing you can do is to ignore it. By burying your head in the sand and not confronting the problem, you could harm your credit score and face longer-term consequences.

Instead, you should contact your provider as soon as possible if you think you might struggle to make your next payment. You may be able to work something out with your lender, whether that’s a payment deferral, making a reduced payment, or arranging a new repayment schedule that you can afford to meet. The options available will depend on the provider, your situation, and how much you owe.

If you have just missed a payment you should report it immediately; your provider may give you more time to repay it and they may delay reporting the missed payment to credit reference agencies.

If you think you will struggle to afford your car finance in the long-term, and not just the next payment, there are several options to consider.

Voluntary termination

Cancelling your car finance early through voluntary termination is a solution if you cannot afford your car finance payments. You can contact your provider to say you want to end your agreement and return the car, without facing any further charges.

However, you can only do this if you have paid more than 50% of the total amount of your finance agreement. If you have paid more than 50% when you choose to return your car, you won’t get a refund. If you haven’t yet repaid more than 50%, you can contact your provider to make a one-off payment to reach this point and return your car.

Bear in mind that the halfway point of repayments varies between different types of car finance, and won’t always be exactly halfway through your contract term.

» MORE: Voluntary termination of car finance

Part-exchange your car

If your financial situation has changed, you may be able to part-exchange your current car for a cheaper car on a finance deal with smaller monthly repayments.

You could return your car to settle your finance, and use any equity leftover to go towards your new vehicle. However, this will only be possible if you’re not in negative equity on your current car finance and if you meet the requirements of the lender.

» MORE: How to part-exchange a car on finance

Refinance your loan

You may be able to refinance your existing car finance, either with a new provider or your existing provider. If possible, you could choose to extend the term to reduce your monthly payments, although this would mean you pay more interest and repay more overall.

Refinancing may only be suitable if you have a good credit score and qualify for the most competitive rates. Consider the alternatives, and only apply to refinance if you’re confident it’s right for your situation.

» MORE: Should I refinance my car loan?

Sell your car

If you used a personal loan to buy your car and you’re finding it difficult to make your loan payments, you could sell your car as the finance isn’t secured on the vehicle. The sale may then give you enough money to clear your outstanding debt, although you would also be without a vehicle.

However, if you financed your car through hire purchase or personal contract purchase, you don’t legally own the car so you won’t be able to sell it. You would have to pay a settlement figure to clear your finance which would transfer ownership of the car to you, before you can then sell it on.

If you are finding it hard to make payments, you may not have the money to pay off your car finance. But you may be able to sell your car to a dealer who will pay off your finance for you, as long as it doesn’t exceed the value of your car.

» MORE: Can you sell a car on finance?

Can I be imprisoned for not paying my car finance?

You will not go to prison for not repaying your car finance. As with other types of credit, your provider will contact you after you have missed payments. Usually, at this point your provider will discuss with you how to make up your missed payments and pay the arrears that have resulted.

If you continue to miss payments, they might issue a default notice and take action to repossess the car. A debt collection agency could get involved and a county court judgement may be issued against you.

If you’re worried about not being able to afford your car finance, or any other debt repayments, you can contact debt charities, such as StepChange, for help.

» MORE: How to find debt help