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Regulator confims new coronavirus car finance measures

Financial Conduct Authority extends availability of payment deferrals to struggling borrowers

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UPDATE, 19 November 2020: The FCA has today confimed the latest support measures outlined below. They will officially come into force on 25 November, but finance companies are encouraged to provide the relevant support as soon as possible rather than waiting until next week.

The Financial Conduct Authority (FCA) has announced new car finance measures this morning to help borrowers affected by the ongoing coronavirus pandemic.

Following on from the measures announced during the UK’s first lockdown back in spring, the new measures again provide for customers to defer their car finance payments for up to six months.

In April, the FCA directed finance companies to offer a three-month payment deferral to any customers struggling to make their payments. This was followed in July by the option to provide another three-month deferral for customers who were unable to resume their normal car finance payments.

These new proposals will mean that:

  • Borrowers who have not yet had a payment deferral will be eligible for two payment deferrals of up to six months in total
  • Borrowers who are currently in the middle of an initial payment deferral will be eligible for a further payment deferral of up to three months
  • Borrowers who have previous had a payment deferral will be eligible for another payment deferral, as long as the total period deferred is no more than six months

Under the FCA’s latest guidance, borrowers have until 31 March 2021 to request an initial payment deferral.

Who is eligible for a payment deferral?

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Car finance borrowers who have not previously taken any payment deferral can choose to take up to two ‘payment holidays’ of up to three months each, for a maximum of six months in total.

Borrowers who have taken (or are currently taking) an initial payment deferral may take a second deferral when this one ends, for up to three months.

The FCA is urging consumers not to contact their lenders until the new measures are in place. Lenders are required to provide further information soon.

Who is not eligible for a payment deferral?

Borrowers who have already taken (or are currently taking) their second payment holiday cannot apply for a further deferral, and nor can customers who are in arrears on their car finance payments.

If you are not eligible for a payment deferral but are struggling with your car finance payments, you should contact your lender to discuss your options. There may be alternative arrangements that could help you, such as making reduced payments for a period of time.

Will a payment deferral affect my credit record?

Any payment deferral taken under the FCA’s coronavirus car finance measures should not be listed as missed payments on your credit file. However, any future credit application will take into account your current financial position, so if your income has been reduced then you may find it harder to acces finance.

If you are entering into support measures that do not fall under the FCA’s coronavirus measures, such as reduced payments or waived interest, then this will be noted on your credit file and may affect your ability to borrow money in the future.

Should I take a payment deferral?

Although a three-month payment deferral is the FCA’s preferred method of support for customers struggling with their car finance payments, that doesn’t mean you should automatically take one. A payment deferral is certainly better than defaulting on your agreement, but it’s not ideal for many reasons.

The FCA has stressed that customers who can afford to make their payments should continue to do so. A payment deferral is not a discount, or an interest-free holiday. You will accrue interest on every day that you are deferring your loan, which could add hundreds or even thousands of pounds to your overall borrowing.

In addition to additional interest, extending your car finance agreement by three or six months will probably lead to some potentially substantial extra expenses that could fall due. Road tax, servicing, insurance, breakdown cover, MOT testing and other costs tend to fall annually, so you could end up paying thousands of pounds extra in order to save a few months of finance payments.

For more information about taking a payment referral, have a read of our helpful guide:
Should I take a payment holiday on my car finance?

Can I end my car finance agreement?

It may be that ending your car finance agreement is a viable option for you, depending on how much you still owe the finance company. There are a couple of options here.

One of the most popular but also most misunderstood is voluntary termination. If you have repaid at least 50% of the total amount payable, you can hand the car back to the finance company with nothing further to pay (apart from damage beyond normal wear and tear). If you haven’t reached the 50% threshold, you can still voluntarily terminate the agreement but you will have to pay whatever the shortfall is to get to the 50% point.

For more information about voluntary termination, have a read of our very popular guide:
Car finance: Voluntary termination of a PCP or HP

You may also be able to settle the finance agreement in full. If your car is worth the same or more than what you owe the finance company, you should be able to sell the car to a dealer or buying service like We Buy Any Car (other services are available; we have no specific recommendations). Talk to your finance company as they may have specific requirements for how you go about selling the car and paying off your debt (since it’s legally not your car to sell).

For more information about settling your car finance agreement, we have this helpful guide:
Car finance: How do I settle a PCP early?

What does the industry say about these new car finance measures?

The Finance and Leasing Association (FLA), which represents lenders, has cautioned against payment deferrals of up to six months and has called for the FCA to revert to its initial position of a single three-month deferral option for customers in financial difficulty.

Stephen Haddrill, Director General of the FLA, said: “Lenders are committed to supporting customers in financial difficulty and it is vital that this support is provided in a way that best serves their borrowers’ interests. 

“This is best achieved under existing FCA rules that require lenders to assess their customer’s position carefully. Giving borrowers the impression that a six-month deferral is always the right answer is dangerous.  It could leave people with unsustainable debts that they may struggle to repay.

“The FCA should limit its guidance on payment deferrals to three months at this stage as it did in March, so that there can be a full review of the policy by the FCA, and of individual circumstances by lenders before any extension. Without this, some people will continue deferring payments and accruing debt to their extreme detriment.”

Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.

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2 COMMENTS

  1. Hi,

    I am 30 months into my 38 month pcp options agreement with Ford. I have had a one month payment deferment due to the corona virus back in June, which I have now repaid and am now back up to date with payments.

    I am not looking to change the car at the end of the agreement as it’s the best car I have ever had in 25 years, due to higher mileage the current value is £7000, but the early settlement figure is around £8300, the GMFV in May 2021 is £6400, so, my question is…. I asked Ford Credit if they could consider a lower GMFV for May 2021 Because the Covid 19 has affected used car values even though my mileage has increased….. their answer to this question was that because the GMFV was fixed at the outset of the agreement they could not change it.

    However, I have been monitoring the value of my car regularly with numerous PX valuations from We buy any car and various dealers, including non Ford, the results show that even if my mileage band of 12000 per year had been adhered to, the value of the car is going to be below the GMFV, but crucially, the valuations being offered now don’t differ significantly even if the mileage was not being exceeded!!

    This to me seems grossly unfair and I would like to challenge the situation with the finance company and the FCA.

    I would value your opinion and advice please?

    Many thanks.

    • Hi James. Your GMFV is designed to cover the amount of money you still owe the finance company at the end of your agreement (the balloon) if you hand the car back. If you want to keep the car, that’s how much you owe to settle your debt. You can obviously ask them if they will accept a lower figure, but they will almost certainly reject it – and they’re perfectly entitled to do so, as you still owe them the full balloon value.

      The fact that the car’s value at the end of the agreement is likely to be less than what you still owe is a separate issue and doesn’t change the amount of your debt. If you are under your mileage allowance, you can give it back and buy a similar car for less money than your balloon amount. If you are over your mileage allowance, they will certainly try to charge you for the additional miles.

      Based on what you’ve described, I can’t see anything unfair here. For more information, have a read of our guide to your options at the end of your PCP.

What are your thoughts? Let us know below.