Car Finance (HP, PCP, PCH)

In recent years, the car industry has witnessed a substantial shift in the way consumers purchase cars. Over 90% of new cars now find their way to our driveways through various car finance options. These financing agreements offer flexibility and often require smaller upfront payments, making them a preferred choice for many.

The four most popular ways to buy new and used cars are: 

  • Hire Purchase (HP): You might pay an initial deposit, then repay the balance in instalments over a set period. At the end, you own the car.
  • Personal Contract Purchase (PCP): You might pay an initial deposit and make monthly payments much like HP, but these are typically lower because you are only financing a part of the car's value. At the end of the term, you can either return the car, pay a final payment to keep it, or trade it in.
  • Personal Contract Hire (PCH): Essentially a lease. You rent the car for an agreed period and return it at the end. There's no option to buy.
  • Bank Loan: Some choose to take a personal loan to buy a car. This means monthly payments go to the bank or lender, not a car finance company. Your car is not at risk from missed payments.

We all know life is unpredictable. Economic downturns, personal financial crises, or unexpected expenses can suddenly make what once seemed like a manageable monthly payment feel like an overwhelming burden. When you factor in the rising cost of living and unforeseen challenges, many individuals can find themselves questioning if they can continue to meet their car finance obligations.

If this scenario sounds familiar, it's important to remember that you're not alone and solutions are available. If you're struggling with your car finance agreement, Advice NI is here to support you. You’ll get us on 0800 915 4604, and we will provide guidance tailored to your unique circumstances, helping you make informed decisions.

If  you have a car on HP, PCP or PCH, and start to struggle with your payments, take a look at our Q&A below: 

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1) I'm facing difficulties with my monthly car payments. What should I do?

Communication is key. If your monthly payments become difficult, it's recommended to initiate a conversation with your finance company right away. Being proactive and transparent might lead to possible solutions, such as a temporary payment freeze or an extension of the loan duration to lessen the monthly cost. 

Letting payments default without communication can negatively impact your credit history and future financing opportunities.

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2) Is it possible to return my car if I can't keep up with the finance payments?

Yes, you can under certain conditions. The provisions of the Consumer Credit Act gives you the statutory right to terminate your HP or PCP agreement at any time - this is called Voluntary Termination (VT). You’ll need to have paid 50% of the total amount payable under the agreement, otherwise you’ll need to make up the difference if you want to hand the car back.

In a PCP agreement, the Guaranteed Future Value (often referred to as the balloon payment) will need to be included into total amount payable when trying to ascertain whether you’ve reached the 50% mark. Because of this, you will need to pay many more months to reach the 50% point of a PCP agreement. 

It’s not generally possible to terminate a PCH agreement early. If you do, you may need to pay the full amount remaining on the lease. 

You won’t be able to voluntarily terminate your HP/PCP agreement if your lender has already defaulted the account. If you’ve missed a few payments, it could be too late. If you’re considering a VT, and are unsure whether it’s possible, or if you’ve reached the 50% point, check with your lender or call Advice NI’s Debt Helpline on 0800 915 4604 for advice.

If you can’t VT, you may wish to consider a voluntary surrender. 

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3) What’s the difference between voluntary termination and voluntary surrender?

Voluntary termination (VT) is a right you have to end a car finance agreement early, when you've paid off 50% of the total amount payable. When you use VT, you give the car back and there are no further payments or penalties. Plus, it won't hurt your credit score, so it's a relatively clean break.

Voluntary surrender, however, is when you decide to give the car back because you can't keep up with the payments. After returning the car, the finance company will often sell it at an auction. If the car sells for less than what you owe, you'll be liable for that shortfall. A voluntary surrender will impact your credit score, making things a bit tougher for you in the future. So, it's essential to weigh up which option works best for you. 

A voluntary termination, unlike a voluntary surrender as part of a repossession process, will not lead to any negative markers on your credit report. One small caveat: if you were to terminate car finance agreements regularly, this may lead to an element of damage to how prospective lenders view you.

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4) OK, I’ve decided to return my car. What should I know?

The possibility of returning your car is largely based on your finance type and your position in the agreement's tenure. Again, for those under personal contract purchase (PCP) or hire purchase (HP), you have the right to return the car to the lender if you've settled at least 50% of the total amount, inclusive of any interests and fees – this action is termed as voluntary termination. 

However, if you've not reached the halfway mark in your repayments, you'd need to pay the difference. Conversely, overpayments won't be refunded if you decide to terminate. 

When you try to end agreements early, companies can be hesitant since they could stand to lose money. As a result, they might not be too keen on facilitating a swift voluntary termination.

To avoid potential delays, it's a good idea to send them a letter stating your intention for a voluntary termination.

It’s important that you make the recovery process as easy as possible for the lender. This will ensure no additional recovery, towing or tracing costs. Often they will come to your property to recover the car, or may agree for you to take it to the dealer’s premises.

The finance company might attempt to slap on extra charges based on your car's mileage, especially if it exceeds what they expected. However, if you've maintained your car well, they legally can't impose such penalties.

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5) Am I allowed to sell my car if I’m struggling?

Generally, for finance options like PCP or HP, you won't have complete ownership of the car until all payments are finalised. For that reason, a private sale isn't legally permissible. If you want to consider a private sale, perhaps because you feel you will get more for the car than your lender, you will need to seek their permission before agreeing to sell.

Alternatively, you might be able to trade it in with an authorised car dealer, as they can settle the ongoing finance for you, integrating it into a new, more affordable finance contract if you choose another car. 

Remember, PCH-based cars are never your property, and you will need to return them at the end of your hire agreement. Given this, you will never be allowed to sell the car.  

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6) What are the consequences if I choose to ignore the car finance payments?

Neglecting to pay your contractual monthly payment without first speaking with your lender is a risky path. Initial missed payments will trigger a response from the finance provider, urging you to get back on track. Continuous non-payment can result in formal notices of arrears, and, after 3 or 4 missed payments in a row, a default notice. A default notice will negatively impact your credit rating for six years, and would be quite damaging for future financing plans. 

If you fail to remedy the arrears situation to the lender’s satisfaction, it could lead to them reclaiming the car and pursuing you for the shortfall balance.

The best approach, if you're facing difficulties, is to engage with your dealer or lender early on to discuss potential solutions. This will increase your chances of mitigating any damage to your credit report and future borrowing options.

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7) Do I have any protection if the lender tries to recover the car and I want to retain it?

If you have paid one third of the total amount payable under the finance agreement, it becomes a ‘protected good’. In all reality, this doesn’t provide much protection as it merely requires the lender to get a court order to repossess the car. They will likely take this step and, while it will take a little more time to recover the car, any additional court and recovery costs will be added to your outstanding debt.

In our experience, the best way to avoid losing your car is to proactively engage with the lender and get an amicable repayment in place as soon as possible. Often, any payment arrangement will need to be at a level above the contractual monthly payment to help clear the arrears over time.

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8) Can I reduce my payments by switching to a cheaper car?

If you have a car under PCP or HP finance and find the repayments challenging, your dealership might be able to guide you to a more budget-friendly vehicle, helping terminate your current agreement and transitioning you to a fresh one. This way, you still have transportation but with reduced monthly payments. Also, you could consider other ways to cut costs, such as seeking more affordable insurance, minimising mileage, etc. 

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9) I have recently given my car back and will have a shortfall, what can I do?

First and foremost, don't panic. Situations like these are more common than you might think, and there are avenues you can explore. The best immediate step is to contact us at Advice NI on 0800 915 4604. Our advisers all have expertise in this area and can guide you through the potential options to manage or reduce that shortfall.

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