Can’t Afford Car Finance Anymore? See What Happens Plus Our Advice On What To Do


There are a few options you can take if you can’t afford you car finance payments. PCP (Personal Contract Purchase) agreements allow you to sell or part-exchange the car if you’ve got equity in the vehicle and can repay what you owe.

Alternatively, you can end the contract early if you’ve paid off 50% of the total finance.

Want to find out what your options are if you’re on car finance and can no longer afford it? Discover our expert advice and more in this handy guide so you aren’t caught out.


Steps to take if you can’t afford your car finance anymore


Step 1: Contact your finance provider straight away

Young woman using smart phone stood next to a car

The first thing to do if you can’t afford your car finance is to notify the provider of your agreement straight away. They will be able to advise you on what to do next and come to an agreement that works for both parties.

Most finance providers have had plenty of experience with helping people overcome an affordability issue.


Step 2: Consider your options


After speaking to the finance provider you’ll most likely have a clear set of options to choose from. Usually these will include:

  • Early termination – if you’ve already paid 50% of the total finance (including the balloon payment) for the car, you have the right to cancel the agreement early under Section 99 of the Consumer Credit Act 1974.
  • Sell/part-exchange the car – this is a good option to take later on in the agreement when it’s more likely that the car will be worth more than the outstanding balance owed
  • Request a payment holiday – finance providers will sometimes offer payment holidays if affordability is only a temporary issue. However, you should check with them beforehand as these tend to be offered on a case by case basis.

If you decide to take a payment holiday, you’ll still need to pay the remaining finance on the car, but at a later date.


Step 3: Part-exchange your car if it’s worth more than the settlement fee

Pressing the open key on a car

As we mentioned earlier, having equity in a car finance agreement puts you in a good position to part-exchange it. If you can no longer afford your car finance it’s a great option because the extra money can be put towards the deposit on your next car.


If you part-exchange your car early, any equity is likely going to be used to pay off any outstanding finance owed.


Step 4: Is your car worth less than the settlement fee? Look at negative equity car finance


Negative equity car finance lets you pay for a new car, while at the same time repaying costs from a previous agreement.


In most cases switching to another car can help reduce your monthly payments, but you should take care to ensure the following:

  1. The new car is less expensive
  2. Payments for the new car (plus costs from the previous agreement) are affordable
  3. You’re happy with the ‘trade-in’ deal for your old car offered by the finance provider

Step 5: If you’re leasing your car, consider an early settlement or changing your agreement/vehicle


Car leasing is slightly different to other forms of car finance when it comes to not being able to afford monthly payments.


You have a few options in this situation.

  1. Cancel your agreement early – this is usually the most expensive option, because a leasing company will often require you to pay 50% of any remaining finance, plus an early termination fee
  2. Request a change of terms – if you don’t quite want to cancel your lease agreement entirely, but just want to reduce the cost a little, you can amend your terms to make it more affordable. Two ways of doing this include choosing a lower annual mileage or extending your contract length to spread the payments

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Will I be fined for missing car finance monthly payments?

Car finance payment using a credit card

A car finance provider has the right to charge you for any missed payments, which can also negatively affect your credit score.

It’s important to keep in mind what you’re paying each month for your car so that you can budget for it. If you have a change of circumstances and can no longer afford your car finance, check that you can still afford your payments.


A car finance provider has the right to charge you for any missed payments, which can also negatively affect your credit score.

Related:  How Does Financing A Car Work?

It’s important to keep in mind what you’re paying each month for your car so that you can budget for it. If you have a change of circumstances and can no longer afford your car finance, check that you can still afford your payments.


Speak to your finance provider if you think that you’ll miss a monthly payment. They will be able to help you come up with a solution so that you aren’t fined or penalised on your credit history.


Can I hand my car back if I can no longer afford the monthly payments?


Whether you can hand your car back early depends which car finance agreement you’re currently on. For PCP and HP deals, as long as you’ve paid 50% of the total finance then you will be able to terminate your agreement early. However, most people won’t have paid off this amount of finance until fairly late on. This is especially true for PCP agreements, which include the balloon payment and any additional fees as part of the total finance.

If you’re currently leasing your car, you will need to pay 50% of any remaining lease payments, plus an early settlement fee if you choose to hand the car back early.


For more information about getting out of a lease agreement, check out our handy guide.


How do I get out of a car loan I can’t afford?


There are a few ways that you can get out of a car loan you can no longer afford.

  1. Sell the car – while it may not be ideal, by selling your car you may be able to get enough cash to afford the repayments on the loan. If the car has kept its value well, you may even have surplus money to put towards a deposit on a more affordable model.
  2. Refinance your car loan – by refinancing your car loan you can benefit from lower monthly payments, especially if your credit score has improved or market interest rates have gone down – or both.
  3. Negotiate a different term – you may be able to have your car loan repayments temporarily paused while you get back on your feet. Another way you can make payments more affordable is by asking the finance provider to extend your term, which will spread the payments over a longer period.
  4. Voluntarily surrender the car – if you want to avoid repossession but can’t afford to choose another option, you can voluntarily surrender the car. This allows you to return the car on your terms and avoid repossession costs.

If you decide to voluntarily surrender the car, it may have a negative impact on your credit score.


How to cancel your car finance agreement early


To cancel your car finance agreement early it’s much easier to do this when you’ve already paid off 50% of the total cost. However, even if you have more than half the balance outstanding then you can still end your agreement early. You will need to make some monthly payments to bring the total amount paid up to half of the finance.

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Once you’ve paid half of the total finance, you can easily cancel your contract by contacting the provider who will assist with the process.


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


During your car finance agreement the lender is the owner of the vehicle, so you won’t be able to sell it until you’ve made your final payment. For PCP deals this will be the final balloon payment, whereas on HP it will be a cheaper option-to-purchase payment.


Want to sell your car quick, today? Our car selling partner Motorway can provide a free valuation and sell your car within 24 hours. Motorway will find your best offer from over 3,000 verified dealers, so you can get the best price for your car.


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For more information on car finance and leasing, check out our handy guides.


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