Car finance and loans. Advice if you cannot afford payments

Hire purchase (HP) or conditional sale

When you buy a car with a hire purchase (HP) or conditional sale agreement, the finance company owns the car until you have made the last payment.

The finance is normally from a company separate to the garage or dealership.

What can you do if you cannot make the payments?

• You can return the car: This will end the agreement but you will not get any payments you have made back. If you have paid more than half of the agreement you should have nothing more to pay
• You cannot sell the car until you have made all the payments
• The finance company can take the car back if you miss payments. They can do this without going to court if you have paid less than a third of the agreement

Need help with car finance or loan debt?

Buying a car using a personal loan

When you buy a car with an unsecured personal loan, you own it. The loan is often provided by a finance company separate to the garage or dealership. You then repay the loan to the finance company.

What can you do if you cannot make the payments?

• You can sell the car at any time
• There are no restrictions on mileage
• The loan provider cannot take the car back if you miss payments
• You have no rights to end the agreement and return the car early
• When you have taken out a car loan you have to repay the full amount

Lease or hire agreements

When you lease or hire a car, it remains the property of the finance company. You pay a monthly amount for a fixed period and hand the car at the end.

• There are often restrictions on use
• The finance company could penalise you for using too much mileage

What can you do if you cannot make the payments?

• You cannot sell the car
• The finance company can take the car back if you miss payments

Personal contract purchase (PCP)

When you buy a car with personal contract purchase (PCP) the finance provider still owns the car.

The agreement is normally over three years. At the start you agree a ‘guaranteed future value’ with the dealer. This is based on the car type and how many miles you think you will drive.

The payments you make cover the drop in the value of the car while you are paying back the PCP.

So if:

• A car is worth £20,000
• The dealership works out it will be worth £15,000
• Your PCP lasts three years

The amount you will pay in three years is £5,000. There will be interest on top of that.

If you were buying the same car outright, you would pay the full £20,000 over five years. This means PCP can be a cheaper way to drive a new car. Also:

• You can hand back the car at the end of the three years
• There will be nothing more to pay if you have not gone over the mileage limit or damaged the car
• You could buy the car by paying the amount left over

What can you do if you cannot make the payments?

• You cannot sell a car on PCP as it does not belong to you
• The finance company can take the car back if you miss payments
• You can return the car early if you find you cannot afford payments, but you could have more to pay if you do this

Logbook loans

With logbook loans, you hand ownership of your car to the finance company until you make the last payment.

You can use logbook loans to buy a car. But they are often used to borrow cash secured against a car you own.

We recommend avoiding logbook loans.

• They are an expensive way to borrow money
• You have very few rights
• The lender can take your car if you miss payments and build up arrears. They do not need a court order to do this
• You cannot end a logbook early
• You cannot sell the car while the loan is outstanding

Help and advice

You should get expert advice on your options if you have missed payments or you are finding it hard to deal with debt. The many types of car finance can make it confusing to know how missed payments will affect you.

Take two minutes to answer a few simple questions if you are worried about car finance debt. We will find the best way to help you.

Common questions about car finance

How long can you go without paying your car finance?

The lender will contact you after you miss one or two payments. At this point they should discuss ways for you to catch up with payments and pay the arrears.

They may issue a default notice if you keep missing payments. They can then take further action to collect the debt and to recover the car. They may use a debt collection agency or apply for a county court judgment (CCJ).

Find out more about the debt collection process.

Can you go to jail for not paying a loan?

You cannot be sent to prison for not paying a loan.

There are some situations where the court can take further action if you do not follow their instructions. This is rare and would happen as a last resort if you have not done what the court has ordered you to do.

Find out more about the risk of being sent to prison for debt.

Can I sell my car if it is still on finance?

The finance provider still owns the car if you have bought the car through:

• Hire purchase
• Conditional sale
• Personal contract purchase (PCP)

This means you cannot sell it without the permission of the finance company. This also applies to lease or hire agreements.