Sometimes life can throw curveballs, and even the most financially responsible people can face temporary setbacks. If you’re worried about meeting your car finance payments, it’s important to talk to your finance provider sooner rather than later. They can often offer ways to make your plan more manageable so you don’t end up in financial difficulty. For example, you may be able to take a payment holiday whilst things settle. In this guide, we’ll explore what payment holidays are, who can qualify for them, and the impact they can have on your car finance agreement and credit report.

What is a Payment Holiday?

A payment holiday, often referred to as a payment deferral, allows you to temporarily pause your finance repayments for a pre-agreed period (usually around three months). This can give you some breathing room to manage your finances and get back on track.

Who Can Take a Payment Holiday?

Payment holidays aren’t guaranteed and may differ from lender to lender. Whether you qualify depends on your individual circumstances and the specific policies of your car finance provider. Generally, lenders are more likely to consider a payment holiday if:

  • You have a proven history of making your car finance payments on time.
  • You can demonstrate a temporary financial hardship, such as job loss, illness, or unexpected expenses.
  • You have a clear plan to get back on track with your payments after the payment holiday.

The Impact on Your Car Finance Agreement

While a payment holiday offers temporary relief, it’s important to understand the consequences. Firstly, even though you’re not making regular payments, interest on your loan may continue to accumulate. This means the total amount you owe will increase during the payment holiday. Secondly, the paused payments will typically be added to the end of your loan term which extends the overall repayment period.

Will a Car Finance Payment Holiday Impact my Credit Report?

Taking a payment holiday can appear on your credit profile. While not necessarily a negative mark in itself, it might affect your credit score slightly. However, the impact is usually less severe than missing payments without agreeing a payment holiday with your provider first.

What Happens if I Can’t Pay My Car Finance This Month?

If you’re struggling to make your car finance payment, it’s crucial to communicate with your lender as soon as possible. Don’t wait until you miss a payment. Explain your situation and explore potential solutions. Here are some options your lender might offer:

  • Payment holiday: As discussed earlier, a payment holiday could provide temporary relief. In some instances, you may be required to make a token payment if your provider doesn’t allow zero-cost payment. This means you may be charged £1 during your payment holiday.
  • Restructured payment plan: Your lender might be able to adjust your repayment schedule to make monthly payments more manageable until you can return to full payments.
  • Interest-only payments: While not common, some lenders might offer interest-only repayment plans during a time of financial hardship. This means you’d only pay the monthly interest accrued on the loan amount, not the principal.
  • Voluntary Termination: If you’re absolutely certain you won’t be able to keep up with your car finance payment and are considering surrendering the vehicle, voluntary termination might be an option. This allows you to return the car to the lender and settle the remaining loan balance. For some lenders, you may only be allowed to do this if you’ve reached at least 50% of the total loan amount.

How to Get a Car Finance Payment Holiday

If you feel like you’re not going to make your finance repayments and require a car finance payment holiday, you should:

  1. Talk to your lender: The first step is to contact your car finance provider and explain your current situation. Be upfront about your struggles and why you’re having difficulty making payments.
  2. Explain your plan: Let your lender know how a payment holiday would help you get back on track financially. Give them a timeline of when you expect to be able to resume your regular payments and how.
  3. Understand the options: Your lender might offer a payment holiday, but they could also suggest alternative solutions like a restructured payment plan. Make sure you understand the terms and conditions of any option before agreeing.
  4. Consider the impact: A payment holiday can offer temporary relief, but remember that interest will continue to accrue during the pause. This means you’ll end up paying more overall.

Struggling with Your Repayments?

If you’ve hit a roadblock with your monthly finances and need to talk through your options, our friendly team at Ucan are happy to help. If you already have a car finance facility with us, reach out to your account team for support. Or contact our experts if you’re looking to secure new finance.

For further reading, our blog has plenty of helpful insights to help you get to grips with the world of car finance.