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Problems making car repayments

What to do when you have problems making car payments

Cars can be essential – especially if you don’t live near public transport or need to get to work or school – but they’re expensive to own and run. Costs include the car itself, insurance, tax, servicing, the NCT and fuel. Because of all these expenses, it’s easy to fall behind on repayments. That’s why we’ve created a guide to help you manage your car repayments.

If you’re having trouble making car payments, your options depend on how the car was financed. This page explains how Personal Contract Plans (PCP), hire purchase (HP) and personal loans work, what voluntary surrender and the half rule mean and how to deal with arrears or repossession.

It also outlines how to contact your lender early and how to get free advice from the Money Advice and Budgeting Service (MABS), helping you protect your rights and avoid costly mistakes.

Can you end your car finance agreement early? 

If you have a hire purchase or personal contract plan agreement, you may be able to end it early. Below, we explain the half rule, how it works in practice, how to use it and when voluntary surrender may be relevant. 

Ending your finance early: The half rule 

The half rule is a legal right under the Consumer Credit Act 1995. It allows you to return your car and end the agreement at any time. You don’t have to be in financial difficulty to use it – it is a condition built into hire purchase agreements for the benefit of the consumer, giving you the right to end the agreement early once certain conditions are met.

What does the half rule mean?

  • If you’ve paid at least half of the total cost, you have the option to return the car and end the agreement early. You may still be liable for any damage or repair costs.
  • If you have paid less than half of the total cost, you can return the car, but you must pay up to the halfway point. 
  • You can use the half rule even if you are in arrears, but you will still owe the arrears and may have to pay surcharge interest. 
Top tip
If you’re finding car repayments hard to manage, the half rule may help you exit your agreement early but make sure to check what you’ve already paid and what you might still owe before deciding.

 

What should you do if you want to use the half rule?

  • Write to your finance provider. The CCPC offers a sample letter you can copy and personalise to your situation 
  • Agree how the car will be returned
  • Take photos to record the car’s condition
  • Read all documents carefully
  • Do not sign a voluntary surrender form
  • Return the car as agreed
  • If a payment has already been processed after you return the car, contact the finance company to request a refund

PCP and hire purchase 

With PCP and hire purchase agreements, you don’t own the car until the final payment is made. The finance company owns the car until then. 

If you're having difficulties: 

  • You may be allowed to sell the car to pay off what you owe – but you must get permission from the finance company before you can sell it. 
  • You may be able to end your agreement using the half rule. 
  • Many car dealers offer Personal Contract Plans (PCPs) as a way to pay for a car. PCPs can appear very attractive because they usually have lower monthly repayments than other types of loans. However, PCPs are very complex compared to other types of car finance and it’s important to understand all the terms and conditions before you sign up. 

Personal loan 

If you took out a loan to buy your car, you own the car from the start. 

If your circumstances have changed and you are now in financial trouble:

  • Contact your lender and explain your situation 
  • Ask to restructure the loan agreement 
  • Be aware of any extra fees and interest 
  • You may also consider whether selling the car and using the proceeds to pay off the loan is a better approach 
  • If your car still has a high value, you might be able to repay your loan and buy a less expensive model  

What is repossession? 

With PCP or HP, your car can be repossessed if you fall into arrears: 

  • If you've paid less than one-third of the purchase price, the car can be repossessed without legal action. 
  • If you've paid more than one-third, the lender must take legal action. 
  • The car cannot be repossessed from your driveway. 
  • After repossession, the car is sold and the money from the sale goes towards your debt – but you must still repay any remaining balance. 

What is voluntary surrender? 

Voluntary surrender means you give the car back but still owe the full debt. The finance company takes back the car, sells it, and uses the money to reduce what you still owe. You must continue repayments until the debt is cleared. Voluntary surrender usually costs more than using the half rule. 

How voluntary surrender could affect your credit history

Voluntary surrender can also affect your credit record. Returning the car itself is not a negative mark, but if you fall behind on repayments or do not repay any remaining balance after the car is sold, this may be recorded on your credit history.

To help avoid this, you should:

  • Stay in contact with your finance provider
  • Agree a realistic repayment plan for any remaining balance
  • Continue making payments on time where possible

Where can you get free, independent advice?

If you’re having difficulty with your payments, contact your lender as early as possible to discuss your options. You can also get free, independent and confidential advice from the Money Advice and Budgeting Service (MABS).

MABS can help you review your financial situation, work out a budget and support you in dealing with your lender, including communicating your circumstances and working towards an affordable repayment arrangement.

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