Key points
- Contact your lender as soon as you're struggling; they must treat you fairly
- You may be able to hand the car back once you've paid half the total amount payable (voluntary termination)
- If you've paid a third or more, the lender usually needs a court order to repossess
- Don't sell the car without the lender's permission; it belongs to them until it's paid off
- Any shortfall can sometimes be included in a debt solution
Talk to your lender first
Lenders regulated by the FCA must treat customers in financial difficulty fairly. They may offer a payment break, reduced payments or a longer term. Ask what's available and get any agreement in writing.
Voluntary termination
Under the Consumer Credit Act, you can usually end a hire purchase or PCP agreement and hand the car back once you've paid half the total amount payable (including interest and fees). If you've paid less than half, you can still terminate, but you'd normally have to pay the difference. You may also be charged for damage or excess mileage.
What if the car is repossessed?
Once you've paid at least a third of the total amount, the car is usually "protected" and the lender needs a court order to take it back. If the car is sold for less than you owe, you may still owe the shortfall.
Car finance and other debts
If car finance is one of several debts, a review of your whole situation can help you decide whether to keep the car. If you need it for work, an adviser can take that into account when looking at IVAs and other options.
Frequently asked questions
Will voluntary termination affect my credit score?
It's usually recorded as the agreement being terminated rather than defaulted, but practices vary. Missed payments before termination will show.
Can I keep my car in an IVA?
Often yes, if the car is reasonably valued and needed, for example for work. An adviser will look at this with you.
What about car finance compensation claims?
The FCA has been looking at past car finance commission arrangements. Check fca.org.uk for the latest position before paying anyone to claim for you.
Free debt advice is available
You can get free, impartial debt advice from not-for-profit organisations through MoneyHelper's debt advice locator.
Sources and further reading
This guide is general information, not advice, and was correct when last updated. Rules and limits can change. Speak to a regulated adviser about your own situation.