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

    silver VW parked

    If you’re worried about missing a car finance payment, you’re not alone. Life changes, and sometimes money gets tight. The most important thing you can do is contact your lender as soon as possible. They may be able to help.

    If payments go unpaid, the consequences can escalate. You’ll receive reminders and late fees first. After that, your credit score can take a hit, making it harder and more expensive to borrow in the future. In the worst cases, your lender could repossess the car or take legal action.

    The good news is that there are options available to you at every stage. Read on to find out exactly what happens when you miss car finance payments, and what you can do to get back on track.

    Key Takeaways

    • Credit Impact: Missing payments will lower your credit score, making future borrowing more expensive.
    • Repossession: Lenders can repossess the vehicle after issuing a default notice if arrears aren’t settled.
    • Legal Consequences: While you cannot go to jail for car debt, you may face a County Court Judgment (CCJ).
    • Proactive Communication: Contacting your lender early can lead to payment holidays or revised repayment plans.
    • Exit Options: Voluntary termination is a legal right once 50% of the total finance is paid.

    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.

    How missing payments affect your credit score

    Yes, missing even a single car finance payment can hurt your credit score. Your lender reports your payment history to credit reference agencies every month, and any missed or late payments will show up on your credit file for six years.

    A lower credit score can make future borrowing more difficult and more expensive. It could mean:

    • Higher interest rates on loans and credit cards
    • Rejected applications for mortgages or other finance
    • Difficulty passing credit checks for things like phone contracts or rental agreements

    If you think you might miss a payment, contact your lender before the due date. Some lenders may be willing to adjust your payment date or offer a short-term solution that avoids a mark on your credit file.

    Will my car be repossessed?

    Repossession is possible, but it is always a last resort. Your lender would much rather work with you to find a way to keep payments on track.

    If you do continue to miss payments without contacting your lender, they may begin the repossession process. This typically starts with a default notice giving you a set period to catch up on what you owe.

    It is worth knowing your rights here. Under the Consumer Credit Act, if you have already paid more than one-third of the total finance amount on an HP or PCP deal, the lender cannot repossess your car without a court order. This gives you extra protection and more time to find a solution.

    Even after repossession, you may still owe money if the sale of the car does not cover the remaining balance. That is why speaking to your lender early, or seeking free debt advice, is always the better route.

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

    What happens legally when you miss payments?

    1. Initial contact: Your lender will get in touch about the missed payment, usually through reminders, letters, or late-payment notices. Late fees may also be added to your account at this stage.
    2. Default notice: If payments remain unpaid, the lender issues a formal default notice. This gives you 14 days to settle the arrears before further action is taken. A default is recorded on your credit file and stays there for six years.
    3. Repossession: Continued non-payment may lead to the lender repossessing the car. They must follow specific legal procedures, including obtaining a court order if you have paid more than one-third of the total finance amount.
    4. Court action: If the car is repossessed and sold for less than the outstanding debt, the lender may take court action to recover the remaining balance. This can result in a County Court Judgment (CCJ) against you, which makes it significantly harder to get credit, a mortgage, or even some jobs for up to six years.

    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 can you do if you can’t pay your car finance?

    If you’re struggling to keep up with your car finance payments, you have more options than you might think. The first and most important step is to contact your lender straight away. They deal with this regularly and may be able to offer a solution before things escalate.

    Here are the main routes available to you:

    Request a payment holiday or plan revision from your lender

    If you’re struggling to make your car finance payments, contact your lender as soon as you can. The earlier you reach out, the more options they can offer.

    Depending on your situation, your lender might be able to:

    • Offer a payment holiday (a temporary pause on payments)
    • Reduce your monthly payments for a set period
    • Extend your finance term to bring down each payment
    • Move your payment date to better match your income

    Whatever you agree on, ask for it in writing. This protects you if there is any confusion later. It is also worth asking whether the new arrangement will be reported to credit reference agencies, so you know exactly where you stand.

    What is voluntary termination or voluntary surrender?

    These are two different options, and it is important to understand the distinction.

    Voluntary termination is a legal right under the Consumer Credit Act. If you have already paid at least 50% of the total finance amount (including interest and fees), you can hand the car back and walk away with nothing more to pay, provided the car is in reasonable condition. This applies to HP and PCP agreements.

    Voluntary surrender is different. This is where you return the car before reaching the 50% threshold. The lender will sell the car, but if the sale price does not cover the remaining balance, you will still be responsible for the shortfall. Voluntary surrender will also negatively affect your credit score.

    In both cases, contact your lender to understand exactly where you stand and what paperwork is required.

    How to sell your car to cover finance payments

    Selling your car can be a practical way to clear your finance if you can no longer afford the payments. Before you do anything, take two steps:

    • Find out what you owe. Contact your lender for a settlement figure, which is the amount needed to close the finance agreement.
    • Find out what your car is worth. Get a free, instant valuation to see how your car’s current value compares to the settlement figure.

    If your car is worth more than the outstanding finance, you can sell it and use the proceeds to pay off the debt. If there is a shortfall, you will need to cover the difference.

    You do not need to sell privately to sell a car on finance. Motorway handles cars on HP and PCP finance, settling the outstanding balance directly with your lender and paying any surplus straight to you, with no fees or charges.

    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.

    Get free debt advice

    If you are feeling overwhelmed by your finances, free help is available. The following organisations offer confidential, impartial advice on managing debt:

    You do not have to deal with this on your own. Speaking to an adviser early can help you avoid the more serious consequences outlined above.

    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.

    How long can I go without paying my car finance?

    Most lenders will contact you within days of a missed payment. If you go 30 days without paying, the missed payment is typically reported to credit agencies and your credit score takes a hit. After 60 to 90 days of non-payment, your lender can issue a default notice. If you don’t clear the arrears within the timeframe stated in that notice (usually 14 days), the lender can move towards repossession.

    Contact your lender as soon as you think you’ll miss a payment — the sooner you do, the more options you’ll have.

    How many car finance payments can I miss before my car is repossessed?

    There is no single answer, as every lender has their own policy. However, most lenders will issue a default notice after two to three missed payments, which gives you 14 days to catch up on what you owe. If you do not respond or make payment, the lender may then begin repossession proceedings. The sooner you contact your lender, the more time and options you will have.

    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 give my car back to the finance company?

    Yes, in most cases. If you’ve already paid at least 50% of the total amount owed under your finance agreement, you can return the car through a process called voluntary termination. This is a legal right under the Consumer Credit Act. You won’t owe anything further, and the lender can’t chase you for the remaining balance.

    If you haven’t yet reached the 50% threshold, you can still hand the car back through voluntary surrender — but you may still owe the shortfall between what the car sells for and what you owe. Check your finance agreement or speak to your lender to find out exactly where you stand.

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

    Yes, you can sell a car that is still on finance, but the outstanding balance must be settled before ownership can transfer to a new buyer. If you sell privately, you will need to arrange the settlement with your lender yourself.

    Alternatively, selling through Motorway makes the process simpler. Motorway handles cars on HP and PCP finance, settling the balance directly with your lender and paying any remaining equity to you, with no fees or hidden charges.

    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.

    The information provided on this page is for general informational purposes only and should not be considered as professional advice.