Car Finance - What if I Can’t Make My Payments. StepChange (2024)

If you’re struggling to make your car finance payments, your rights will vary depending on the type of vehicle finance you have. When you buy a vehicle through hire purchase it will belong to the lender until you’ve made all the agreed payments. This means you’re not allowed to sell it but you might be able to get a payment holiday.

There are several different ways you can borrow money to buy a car:

• Hire purchase (HP) or conditional sale
• Buying a car using a personal loan
• Lease or hire agreements
• Personal contract purchase (PCP)
• Logbook loans

Hire purchase (HP) or conditional sale

When you buy a car with a hire purchase (HP) or conditional sale agreementthe vehicle remains the property of the finance company until you’ve paid the last payment under the agreement. Usually the finance is provided by a company which is separate to the garage or dealership.

If you can’t keep up with payments you can hand the car back. You won’t get any of the payments you’ve made back, but if you’ve paid more than half of the agreement you’ll usually have nothing else to pay.

However, you can’t sell a vehicle on HP or conditional sale because it isn’t your property. If you fall behind with payments, the finance company can repossess the car, and if you’ve paid less than a third of the agreement they can do this without going to court.

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Buying a car using a personal loan

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

You can sell the car at any time, and there are no restrictions on mileage. If you fall behind on payments the loan provider can’t repossess the car. However you also have no rights to end the agreement and hand the car back early. Once you’ve taken out a car loan you have to pay the full amount back.

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.

These agreements often include restrictions on use, and you could be penalised for excessive mileage.

You can’t sell the car and if you fall behind on payments, the finance company can repossess it.

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, based on the car type and your estimated mileage. The repayments you make cover the drop in the value of the car over the duration of the PCP agreement.

For example, if a car is worth £20,000 and the dealership estimates it’ll be worth £15,000 in three years, the amount you’ll pay back in three years is £5,000 plus interest. If you were buying the same car outright, you’d probably pay the full £20,000 over something like five years. This means PCP can be a much cheaper way to drive a new car.

At the end of the three years, you can hand back the car and as long as you’ve not exceeded the mileage or damaged it, there’ll be nothing more to pay. Alternatively you could buy the car by paying the remaining amount owing.

You can’t sell a car on PCP because it doesn’t belong to you. If you fall behind with payments, the finance company can repossess it. You may be able to hand the car back early if you find you can’t afford payments, but you could still have something to pay if you do this.

Logbook loans

If you take out a logbook loan, you hand over ownership of your car to the finance company until the last payment to the loan has been made.

Sometimes logbook loans are used to buy a car, but they’re more commonly used to borrow cash secured against a car you already own.

We recommend avoiding logbook loans, as they’re a very expensive way to borrow money, and you have very few rights. If you miss payments to a logbook loan and build up logbook loan debt arrears the lender can repossess your car and they don’t need a court order to do this. You have no right to end a logbook early, and you can’t sell the car while the loan is outstanding.

Help and advice

If you've fallen behind with your car finance, hire purchase or struggling with debts it's important to get expert advice on your options. Because of the many types of car finance agreements, it can be confusing to know how any arrears will affect you.

If you're worried about car finance debt, take two minutes to answer a few simple questions, so we can understand the best way to help you.

Frequently asked questions about car finance

• Personal loan debt
• Hire purchase and conditional agreements
• Logbook loans