Coronavirus – Car finance and payday loan support in force
New measures to help those struggling to make their car finance payments have come into effect today (April 27), following a proposed package of support from the Financial Conduct Authority (FCA) last week.
Households that are struggling to make their payments because of the coronavirus pandemic can now request a payment freeze for up to three months from their car finance provider. Car leasing companies and lenders will no longer be able to repossess vehicles in the event of a missed payment.
There will also be support for rent to buy, buy now pay later, pawnbroking and short-term payday loan agreements.
FCA Chief Executive Interim Chris Woolard said, “Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments.”
This freeze on car finance payments and loan agreements follows similar measures imposed on other industries, including the offer of mortgage and credit card payment freezes from banks, and a three-month grace period for UK renters (six months in Scotland).Get free advice
What are the rules around the car finance freeze?
The car finance payment freeze is available to anyone with an existing hire purchase (HP), personal contract purchase (PCP) or personal contract hire (PCH) finance agreement who has been impacted financially by the pandemic. Bear in mind that the three-month payment holidays don’t come into effect automatically; they do have to be requested by the person whose name is on the finance agreement.
- Do I still have to pay interest on my car finance? Even though you can pause your outgoing payments for up to three months, it’s still worth carefully considering how this will impact on your bank balance in the long term, as interest will continue to build up during your payment break. As with any payment holiday, it’s an emergency measure designed to be used as a last resort – so assess if you could get by without it first.
- What happens at the end of my finance agreement? Car finance companies have also been asked by the FCA not to alter agreements in a way that’s “unfair”. For example, in the case of a PCP agreement, factoring depreciation that’s been caused by the pandemic into a final balloon (or lump sum) payment. What’s more, if a customer doesn’t have enough money to pay their final, balloon payment at the end of their lease, lenders must work with them to arrive at a fair outcome.
- How do I request a car finance payment holiday? Get in touch with your car finance company as soon as you can and let them know you’d like to take a payment holiday. Don’t be tempted to just stop making payments – if you do this, it could have a negative impact on your credit rating.
What are the rules around payday loans?
The FCA has also determined that high-interest, short-term credit agreements, including payday loans, must now allow a one-month payment freeze for customers facing financial hardship due to the coronavirus pandemic.
- Why have payday loans been frozen for one month and not three? The intention is that loan customers and firms should use this time to reach an agreement. According to the FCA: “This shorter period reflects the much shorter length of most of these loans and the higher interest rates compared to other high cost credit products.”
- Will I still be charged interest on my payday loan during the payment freeze? No, this payment freeze differs slightly from most emergency measures that have already been announced. In the case of payday loans, the high interest usually associated with these types of loans will be put on pause.
- What else are lenders doing to help? Firms have been asked to show “forbearance” to their customers, which could mean more flexibility on payments even after the break has ended. It’s worthwhile speaking to your lender as early as you can if you think you’ll still struggle to make payments after the one-month freeze.
How about pawnbroking, rent-to-own and buy-now-pay-later agreements?
A three-month holiday will be available to those who have rent to own, buy now pay later and pawnbroking agreements in place. Again, you’ll need to contact the lender if you’re struggling, and can do so any day after the restrictions come into force (April 27).
- Will the item I’ve pawned be sold during the three-month break? If you’ve pawned an item, the broker will now not be able to serve you notice that they’re selling it for three months. If you’ve already been notified that the item will be sold on, they will have to pause the sale of the item for at least three months.
- Can my goods be repossessed? No, if you’ve taken out a rent-to-own or a buy-now-pay later agreement but can’t pay, the items won’t be repossessed until at least the end of the three-month period.
- I have a rent to own agreement with Brighthouse but heard they closed. It’s true, rent-to-own firm Brighthouse have now gone into administration. You can read more about this and find out what to do if you’re a customer here: https://www.creditfix.co.uk/blog/brighthouse-debt-questions-answered/
- I have a buy now pay later agreement. What should I do? Buy-now-pay-later agreements have become increasingly popular, with companies like Klarna, PayPal Credit and Amazon all offering variants. It could be worth checking if you’ve made any recent purchases with this sort of agreement. If you’re still within the interest-free period, you can now extend this for up to three months.
If you’re struggling to make payments on any form of finance agreement, the best course of action is always to let the lender know directly. Just because these measures have been announced, it doesn’t mean these are the only actions a lender can offer to help you. Make them aware of your situation as soon as you can, and there may be a solution that’s more suitable for your circumstances, for example extending your payment freeze or freezing interest rates to give you a chance to catch up on payments.
Falling behind with your finances? Don’t let debt problems spiral out of control. Get in touch with one of our expert Creditfix debt specialists today for free, confidential advice on 0808 253 3299 and start dealing with your debt, today.Get free advice