If you’re struggling to make your car finance payments, you have a few options. One of these is to take a payment holiday from your car finance, to give you a chance to balance your finances.
Below, we explain what a car finance payment holiday is, how you can take one, and what it will mean for your finances.
What is a car finance payment holiday?
Taking a payment holiday from your car finance means that you can take a break from making your payments. If you can take a car finance payment holiday, you’ll agree a short period of time with your lender, often around three months, during which you won’t have to pay your agreed monthly payments.
A payment holiday can be a good option if you’re struggling to make your payments, and you know having a few months to save up will put you back in a good position. It can also be an option if you’ve had an unexpected cost and need a few months to balance your finances again.
Can I take a car finance payment holiday?
Usually, you will have your payment holiday options outlined in your agreement. In some exceptional circumstances, you may be able to speak directly to your lender to ask if you can take a payment holiday from your car finance.
In some cases, the lender might not agree to a car finance payment holiday, but they may be able to suggest an alternative, such as adjusting the payment schedule so you can pay smaller monthly payments over a longer period.
How can I take a payment holiday from my car finance?
The first thing to do if you want to take a payment holiday from your car finance is to contact your lender. You should discuss with them your situation, why you’re struggling to make the payments and why you think a payment holiday will be the best course of action.
If they agree to a payment holiday, you should ensure you understand the full terms and conditions that come with this. You could end up paying more over the length of your payment period, and your credit score might be affected.
If your situation hasn’t improved after the payment holiday, you should speak with your lender again and let them know what’s happening. You don’t want to repeatedly miss payments, as this can have severe negative consequences. You may be able to voluntarily terminate your agreement if you can’t pay, or you might be able to renegotiate your terms to make it more affordable.
Will a car finance payment holiday affect my credit score?
Yes, taking a payment holiday from your car finance can affect your credit score. Usually, it will show on your credit report that you have had to take a break from paying. However, a payment holiday typically won’t have as much of a negative impact as missing payments without first agreeing to a holiday. So, it can still be beneficial if you’re struggling to make payments.
You should always speak to your lender as soon as possible if you begin to struggle with your car finance payments, to minimise the impact on your credit score.
Are there downsides to taking a payment holiday from my car finance?
While a payment holiday can be a good option, there are some downsides that should be considered before you commit. You will often find that a payment holiday results in you paying more than initially agreed over the course of your payment period.
For example, you could still be charged interest for the months that you aren’t paying. If you defer paying this to the end of your agreement, the cost will build up until you pay it. You may be able to negotiate when and how you pay it back with your lender – the quicker you can pay it back, the less it will cost you. However, this will be at the discretion of your car finance provider.
Your payment period will likely be extended by however long you took a break for. So, if you were due to finish paying in February 2025, but took a three-month break, you’ll now finish paying in May 2025. If you have PCP car finance and plan to give the car back, it will mean three extra months of paying for maintenance, road tax, car insurance, and other running costs.
If you want to keep your original end date, you could ask to raise your monthly payments to absorb the cost.
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