Can I take a payment holiday from my car finance? PCP and HP
If you’re struggling to afford your car finance payments, you might be able to take a temporary payment holiday
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What is a car finance payment holiday?
A payment holiday is a short break from your car finance payments that you agreed to upon signing your agreement.
A lender might grant you a payment holiday if you’re struggling to pay. These payment holidays last for a set amount of time agreed between you and your lender, and you’ll need to let them know if you still can’t pay when the holiday comes to an end.
These payment breaks are to allow you to temporarily skip your monthly payments, although you’ll still need to pay the balance in the future.
Any interest charges during that time will still be added on, and the interest will be added to the total balance, so your minimum payment may increase at the end of the payment holiday.
It’s best to talk to your lender about the details, and it can give you some guidance on the best options for your circumstances.
Can I take a payment holiday from my car finance?
Usually, there’s no contractual right to payment holidays in Personal Contract Purchase (PCP) and Hire Purchase (HP) car finance but you may be granted one in exceptional circumstances – it's also dependent on your lender’s forbearance policy.
Whether or not you can take a break from your finance payments will be down to the lender and your individual circumstances, and they’ll be able to advise you.
It could decide that a payment holiday isn’t the best course of action for you so might suggest an alternative – it may offer an alternative payment schedule.
How do I get a car finance payment holiday?
To see if you’re eligible for a finance payment holiday, there are a few things you’ll need to do:
Get in touch with your car finance provider: let them know you need a payment holiday.
Let your lender know what’s going on: give your finance provider the details of your situation and why you’re struggling to pay on time. Explain how a payment holiday will help, and when you’ll be able to restart your payments.
Understand any consequences: make sure you get the terms and conditions before committing to anything your lender suggests and know how this may impact your credit score. If it’s suggesting an alternative to a payment holiday, ensure you know what this entails.
Keep in touch: if your financial situation doesn’t improve, make sure you let your lender know. Missing payments will show on your credit history and have a negative effect – repeatedly missing them can be serious.
What types of car finance offer payment holidays?
Whether you have a PCP or HP finance deal, lease your car, or took out a personal loan, you need to talk to your lender to see if you’re eligible for a payment holiday.
You might be offered an alternative to a payment holiday that your lender views as being more suitable for your situation. This is known as ‘tailored support’.
Alternatives to payment holidays include:
Lower payments: your lender might be able to offer you smaller monthly payments until you’re able to pay in full.
Shorter payment breaks: you might be able to take a holiday from your payments for just one month if you know this won’t be a long-term issue.
Interest-only car finance payments: some lenders might give you the option to only pay the amount of interest you owe on that monthly payment, not the regular payment figure.
Token payment: as some systems in the UK don’t allow for zero-cost payments, you might be charged a token amount of £1 for your payment holiday.
Voluntary termination: if you know you won’t be able to keep up with your payments for the foreseeable future, it might be a better option to terminate your car finance early through voluntary termination. You’ll have to have reached 50% of your total balance – or be able to pay to reach that figure – to be able to do this, however.
Will a car finance payment holiday affect my credit score?
Taking a car finance payment holiday will usually show up on your credit report and could affect your credit score.
However, payment holidays taken due to Covid-19 won’t appear on your credit report if they were taken between 17 March 2020 and 31 July 2021.
If you miss your payments without notifying your lender, this will be reported to credit reference agencies and damage your credit rating.
If you’re struggling to meet your payments, speaking to your finance provider as soon as possible is the best way to ensure your ability to get credit in future isn’t affected.
If you’re worried about money and are struggling to manage payments, you can get free and confidential help from StepChange, Citizens Advice, and National DebtLine.