20/04/2020

Payment breaks on payday loans and car finance

The Financial Conduct Authority (FCA) recently announced support for people with personal loans and credit cards, but this didn’t deal with car finance - which, for a lot of people is one of their most expensive outgoings - or high-cost credit. We’ve been expecting some guidance on how creditors should treat people who are struggling with these types of debt and, on 17 April, the FCA announced its proposals. There will be a short period of consultation but they expect to finalise these proposals by the 24 April.

Motor Finance

Motor finance firms will be asked to allow a 3-month payment freeze for people who are struggling to meet repayments because of coronavirus, and they should NOT to take steps to repossess vehicles.

They can still charge interest, and you’ll need to pay the missed payments back at some point. The finance company can decide how this will be done, but they’re not allowed to use this as a reason to unfairly change your contract terms, for example increasing balloon payments due at the end of the agreement because of coronavirus related depreciation.

For people whose agreements are ending soon and, because of coronavirus, they don’t have the means to pay the balloon payment, finance companies are being asked to try and find a reasonable solution.

As with any payment break, they will only be offered if you speak to your finance company and explain your situation – you can’t just stop paying. They may want you to show them a wage slip or other evidence of your situation.

Payday and other high cost loans

These are slightly different because the term of them is generally much shorter than other finance products and have a much higher interest rate. So, a 3-month payment break may not be feasible because you would have less time to catch up the payments, and it would cost a lot more in interest.

So, what the FCA is proposing, is a 1-month interest-free payment freeze and, after the end of the freeze, the lender will have to agree an affordable way for the payment to be made up. For example, by extending the term by 1 month or by allowing customers to pay slightly more over the remaining months on the loan.

‘Rent to own’ and a ‘buy now pay later’

If you have a rent to own agreement (where you pay weekly/monthly for household items and it only becomes yours once you’ve repaid it in full e.g. Brighthouse) you can ask for a 3-month payment break, and goods won’t be repossessed.

If you have a buy now pay later agreement and the impact of coronavirus means you won’t be able to start making the payments as planned, you can ask your lender to extend your promotional period for 3 months.

If you were struggling before the impacts of coronavirus, you should consider getting debt advice. We can offer free online debt advice which is tailored to your situation.

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