How new measures released by the FCA could help you if you’re struggling to meet your monthly car payments

Written By Dan Powell

New measures by the FCA are designed to help consumers
Find out whether you can get a payment break
Who do the FCA rules apply to?

The Financial Conduct Authority (FCA) has released some new measures designed to help drivers who are temporarily struggling to make their monthly car finance payments. The new FCA measures are in place to make sure everyone is treated fairly by financial lenders during the COVID-19 pandemic.

Can I get a three-month payment break?

From 27 April, finance and leasing firms are being instructed by the FCA to give a three-month payment freeze to all customers who ask for one because of the current situation. It’s worth saying that many financial lenders are already doing this, but from the 27 April everyone with car finance will be entitled to some form of support if they need it because of a temporary problem with their income.

Will my car be repossessed if I ask for help?

No. Lenders have been told to show patience and understanding to anyone who is experiencing difficulties at the moment. This means your contract should not be ended, and your car shouldn’t be repossessed if you admit you are struggling financially because of the Coronavirus outbreak.

Anything else I need to know about the payment break?

You should remember that the new FCA measures won’t cut you off from your financial responsibilities. They’ve been put in place temporarily to give breathing space for those who really need it at the moment. You’ll still need to meet your car’s finance agreement - this means the payment freeze could extend your contract or result in higher monthly payments at a later time, so you should bear this in mind. Monthly interest could also continue to add up, leading to higher long-term borrowing costs.

If you’re unsure about what implications a payment freeze will have on your finances then speak to your financial provider and ask for all of the details and potential costs that could come your way - and get it in writing. And don’t forget to ask what the impact might be on your personal credit score.

What are end-of-contract ‘balloon payments’ and how could they change?

When you take out a Personal Contract Purchase (PCP) you’ll end up with a ‘balloon payment’ - that’s the final amount you would need to pay if you want to buy the car at the end of the agreement.

If the value of your car at the end of the agreement is higher than the balloon payment you can use that money as a deposit to buy a new car on a new PCP. However, if the value of the car is lower than expected, then you may find yourself with nothing to carry over. If you want more detail on PCP, we’ve got you covered here.

The FCA is putting guidelines in place to make sure lenders aren’t unfairly putting their customers into negative equity. This protects you, the customer, from losing more value off your car than it normally would due to short-term fluctuations in used car values caused by the Coronavirus outbreak.

Lenders are also being asked to work with their customers so they can keep their cars for as long as they need it. For example, if you’re unable to pay the final PCP ‘balloon payment’ then your lender should come up with a solution that works for you.

Does everyone have to follow the new FCA rules?

The FCA guidelines are voluntary; but, financial lenders that don’t follow the advice could face restrictions, suspensions or cancellations of their consumer credit licence. If you feel you’re being treated unfairly, you can make a complaint to the FCA.

What else has the FCA said?

Christopher Woolard, interim Chief Executive at the FCA, has said: “We have worked at pace to introduce temporary financial relief tailored for a range of specific credit products.

“Many firms are already working with their customers, but these measures ensure all consumers affected by the coronavirus emergency can apply for a temporary freeze on their payments.”

Head to the FCA homepage by clicking here or to read more about the new FCA guidelines click here.