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    What happens if I don’t pay my car finance?

    silver VW parked

    Failing to pay your car finance can lead to some serious consequences. 

    You’ll initially receive reminders and incur late fees. If you continue not to pay, this can damage your credit score, making it harder to secure loans in the future. 

    Your lender might repossess the car, and in extreme cases, legal action could be taken against you, leading to more costs. Speaking with your lender as soon as possible, is crucial in finding solutions to avoid these repercussions. 

    Read on to learn more about what happens if you miss finance payments on your car and what you can do to help solve the situation.

    What are the immediate consequences of missing car finance payments?

    going through finance documents
    Missing payments on your car finance can quickly lead to problems.

    The impact on your credit score and how it affects future borrowing

    Missing car finance payments negatively impact your credit score, making future borrowing more difficult. And more expensive. 

    Lenders will report missed payments to credit agencies, reducing your creditworthiness. A lower credit score can result in higher loan interest rates, credit card rejections, and difficulty securing mortgages.

    Will my car be repossessed?

    Lenders may repossess your vehicle if you continue to miss car finance payments. This process typically starts with a default notice and if the payments remain unpaid – repossession. This can also further damage your credit score. Plus, you may still owe money if the car’s sale doesn’t cover the remaining loan balance. 

    Contact your lender to discuss repayment options and seek financial advice if needed to avoid repossession.

    car being towed away
    Missing car finance payments can result in civil action.

    1. Initial contact: Your lender will contact you regarding the missed payment, usually through reminders and late notices.

    2. Default notice: If payments remain unpaid, the lender issues a default notice, giving you a fixed period to settle the arrears.

    3 Repossession: Continued non-payment may lead to the lender repossessing the vehicle. They must adhere to specific legal procedures, ensuring a fair and transparent process.

    4. Court action: If the car’s resale doesn’t cover the outstanding debt, the lender might take court action to recover the remaining balance. This can result in a County Court Judgment (CCJ) against you. Again, further damaging your credit score.

    Can I go to jail for not paying car finance in the UK?

    No. You won’t go to jail. Debt-related issues are civil matters, not criminal offences. 

    However, non-payment can lead to severe financial consequences such as damaged credit scores, repossession of the vehicle, and potential legal action from the lender.

    What options are available if I can’t pay my car finance?

    Request a payment holiday or plan revision from your lender

    If you struggle to make car finance payments, promptly contact your lender. Requesting a payment holiday or a plan revision can provide temporary relief. Lenders might offer reduced payments or extended terms to help manage your finances. Being proactive demonstrates responsibility and can prevent further penalties.

    Voluntary termination or voluntary surrender

    Voluntary termination allows you to return the car after paying 50% of the total finance amount, as per the Consumer Credit Act. This can be a viable option if you can’t afford the payments but have already paid a significant portion. 

    Voluntary surrender, on the other hand, involves returning the car to the lender, who will then sell it. However, you might still owe the remaining balance if the sale doesn’t cover the debt.

    Selling your car to cover finance payments

    Selling your car can be a practical way to settle your finance payments if you can no longer afford them. Make sure you obtain the lender’s permission first, as they hold the vehicle’s title until the debt is paid. 

    Selling the car privately often yields a higher price than trade-in options, potentially covering the outstanding balance and providing some financial relief. However, any remaining debt after the sale must still be dealt with.

    Refinancing your loan for better terms

    Refinancing your car loan can help secure better terms, such as a lower interest rate or an extended repayment period. This option can reduce your monthly payments, making them more manageable.

    You’ll need a good credit score and a thorough understanding of the new loan terms to refinance.

    Part exchange for a more affordable vehicle

    Part exchanging your current car for a more affordable vehicle can help reduce your financial burden. Many dealerships offer part exchange deals, allowing you to trade in your car and apply its value towards a less expensive one. 

    This can lower your monthly payments and potentially eliminate your existing debt. Ensure you understand the terms of the new finance agreement and negotiate the best possible deal for your situation.

    FAQs

    Can I defer a car payment, and how many times can I do this?

    Yes, it’s possible to defer a car payment by requesting a payment holiday from your lender. The number of deferrals allowed varies by lender and individual circumstances. Speaking with your lender to understand their specific policies and conditions is essential.

    What happens if I don’t pay my car insurance?

    Failing to pay your car insurance can result in the policy being cancelled, leaving you uninsured. Driving without insurance is illegal in the UK, leading to fines, penalty points on your licence, and potentially having your vehicle seized. Always ensure your insurance payments are up to date.

    Can I sell my car if it’s still on finance?

    You can sell a car that’s still on finance, but you need the lender’s permission. The outstanding loan balance must be settled, before ownership can be transferred. Selling the car privately, or trading it in, can help cover the finance. But any shortfall must be addressed.

    Is it time to sell your car?

    Want to learn more about owning, maintaining, and selling your car? Check out more of our guides here, covering everything from finding buyers, to negotiating a good price, and completing payment safely.

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