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06.11.2018

Finance cars: what happens when you don’t pay?

For many of us, one of the most valuable and essential assets we have are our cars.

It, therefore, will come as no surprise that when people experience financial difficulties, the thought that they may lose their car can become a huge cause of worry and concern, particularly when they are needed to get back and forward to work. A loss of a car in those circumstances can make financial situations worse, as not only do people lose their cars, but they can also lose vital income.

Increasingly, however, most of us don’t own our cars and this makes the risk of losing them even greater. The Financial Leasing Authority, a trade body for finance companies, many of whose members provide car finance, now estimate 90% of all new cars are being purchased using car finance agreements. This means the cars are being purchased using hire purchase and conditional sale agreements or personal contract plans (PCP) which require people to make monthly payments for their cars.

For many, these payments are often the second largest household expenditure after their rent and mortgage payments.

Cars bought with finance

If someone has a car through a finance agreement, then normally they don’t own it until the final payment for it has been made. It remains the property of the finance firm.

If they then go into arrears with their car payments, it may then be repossessed.

What happens when you don’t pay your car finance agreement?

As soon as you miss your first payment, normally your lender will contact you and send you out a reminder to inform you that you must pay the missed instalment. If you then miss a second payment, the firm should then send you an arrears notice, telling you how much you are in arrears. They then have to send these arrears notices at intervals of no less than six months, until you have paid off the arrears or they have obtained a court order.

The finance firm can also then send you also a default notice, which will give you 14 days to clear your arrears.

If you fail to clear your arrears within 14 days, the firm then has the option to terminate the agreement and not only demand you pay the full amount owing, but also that you return the car.

If you are not in a position to pay the full amount, the company can then begin proceedings to have the car repossessed.

How are cars repossessed?

If you have not paid more than a third of the total amount owed under the agreement (including interest), a finance firm may repossess your car without obtaining a court order, although in Scotland, because Scotland has a different legal system, the firm may always require a court order.

If you have paid more than a third and the firm repossesses a car without a court order, you can claim compensation by going to court. This may mean a judge ordering you have no further liability for the debt, or a judge ordering that all the previous instalments you paid must be refunded.

Where you have made more than a third of the payments, the law provides that the firm must get a court order before it repossesses the car. In England, Wales and Northern Ireland, this means applying to the County Court; whereas in Scotland it means applying to the Sheriff Courts.

The Court process of repossessing a car

The court stage is an important one. If you don’t appear or arrange for yourself to be represented, the firm can then ask the court not only for an order requiring you to pay the full amount (including any balloon payments due at the end), but also for you to return the car. If you fail to return the car, Sheriff Officers or Bailiffs may then be instructed to come and take the car from you.

Time Order Applications

However, the law then gives you a further chance in that even if you cannot pay the full amount, you can ask the court to grant a Time Order. This is an order that allows you to catch up on your arrears, whilst resuming the normal monthly payments. If the court grants this order, this can prevent the car being taken off you.

Where the car is repossessed, however, it is normally sold by auction, which does not guarantee the best price and although any funds realised should then be offset against the money that is owed, it rarely is enough to pay off the full debt. This means you not only lose the car, but you are also left with a debt. This may then mean you could be subject to further enforcement procedures by the Sheriff Officers or Bailiffs.

If you are struggling with your finances and have, or are at risk of going into arrears with your car finance agreement, call a Creditfix adviser for free, confidential advice on 0800 431 431