What should you do if your car’s finance deal ends during the coronavirus lockdown?

Car dealer handing over keys in a showroom
The car trade is on hold. But what do you do if your leasing deal is up during lockdown? Credit: Getty

Car finance is the last thing on many people’s minds during the coronavirus crisis. Staying safe and keeping cash and food coming into your household will understandably be your top priorities. But if your car’s finance deal comes to an end during lockdown, it’s worth working out what you want to do about it – before it’s too late. 

Happily, it looks like you might not have to give your car back if you don’t want to – though if you do, you’ll want to know just how to go about getting it back to the finance company or dealer. And what do you do about sourcing a replacement?

We’ve spoken with some finance and leasing experts to come up with the answers, and some useful advice that might help if you are struggling to work out what to do with your car’s finance deal.

What type of car finance do you have?

First, it’s a good idea to work out exactly what type of finance deal you have, if you’re not entirely sure. Here are the four main types of car finance, to help you:

Personal contract purchase (PCP) – this is the most popular kind of car finance in the UK at the moment. You pay a deposit, and then a series of monthly payments over the course of a predetermined length of time, or ‘fixed term’; then, if you want to keep the car at the end of the term, you have to pay a balloon payment – a large lump sum that pays off the rest of the amount you owe the finance company. If you don’t want to pay the balloon payment, you have to give the car back. 

Hire purchase (HP) – this is a little like PCP, but you don’t pay a balloon payment at the end. You do still pay a deposit at the start, though, as well as a series of monthly payments over a fixed term – but the payments are higher, which means once you’ve paid the last one, your debt is paid off and you own the car. You shouldn’t have to give it back unless you’ve missed payments.

Personal contract hire (PCH) – also known as personal leasing, this is effectively a long-term rental of the car. At the start, you put down an ‘initial monthly rental’, and then you pay monthly payments over a fixed term. However, you don’t get the option to keep the car at the end of that term – you must give it back to the leasing company and replace it with something else. 

Personal loan – The oldest and most traditional way to finance a car, a loan from your bank or another loan provider is simple to understand – you borrow the cash to buy the car, then pay it back via a course of monthly repayments over a fixed term.

With a personal loan, you own the car from the start. By contrast, with a PCP or an HP deal, you don’t own the car until you’ve paid off the finance entirely – until then, it’s owned by the finance company. And of course, under the terms of a PCH deal, the lease company owns the car for the duration, and takes it back when the deal comes to an end.

Will the finance company want the car back if my deal ends during lockdown?

It might surprise you to learn that they probably won’t. Most of these companies won’t be able to offer new deals to customers, as they can’t get the cars delivered; they’ll also struggle to collect your old car and sell it on once the deal has come to an end. That being the case, the longer they can keep your deal going for, the longer they’ll have some income to make up for the lack of new business.

“Many lease companies are offering formal or informal extensions on leases,” says Toby Poston of the British Vehicle Rental and Leasing Association. “Deliveries and collections of vehicles have come to a virtual standstill, so this is often the best solution for all parties.”

Like other forms of retail, buying a car just got a lot more complicated  Credit: djiledesign

“Customers should get in touch with their lender as soon as possible,” adds Andrea Kinnear of the Finance & Leasing Association. “As this scenario would suit both parties, there may be a deal to be done in terms of charges. It’s always worth asking.”

If you have a PCP or PCH deal, then, it makes sense to talk to your finance company and see whether it’ll be willing to extend your contract. However, make sure you ask about any fees and charges for doing so – and try to convince your lender to write them off, given an extension is in both of your best interests. 

If your car is financed with a personal loan or an HP deal, of course, you don’t need to worry. If you’ve kept up repayments and your deal ends during the lockdown, you’ll get to keep the car automatically; if you have an HP deal, it should be transferred over into your name at that point.

What if the company won’t extend my deal?

It is, of course, entirely at a finance company’s discretion to extend your deal, and some might not be willing to do so, for whatever reason. However, keep in mind that a finance company shouldn’t force you to deliver the car to a particular location during the lockdown, as this would not qualify as essential travel, and therefore go against Government advice.

That said, it might not be easy for the finance company to get the car collected given the current restrictions on transportation, either. Some finance companies might therefore ask you to keep the car, but not drive it.

Of course, if you’re on a PCP deal, you can still pay your balloon payment and opt to keep the car. If your financial situation is secure, but you don’t have the capital to pay the balloon payment in its entirety, you might want to consider financing it with a personal loan, given how low interest rates are at present.

What if I want my deal to come to an end?

If that’s the case, you need do nothing. You’re under no obligation to extend your finance deal, and the finance company cannot force you to. However, do keep in mind that if your deal does come to an end, the finance company may not be able to collect your car from you in the short term, as we mentioned above. 

“Lenders can still collect cars and move them around, but the practicalities of this process are still being ironed out,” says Kinnear. “Speak to your lender to see what can be arranged.”

If you do have to keep hold of the car for the time being, you’ll be obliged to keep it in good condition, and you’ll still be liable for parking fines until the keys have been handed back and the car’s been signed over to the finance company – even if you aren’t allowed to drive the car any more. 

“If a leasing company can’t collect the car, the customer can hold on to the vehicle, and the leasing company will arrange for it to be insured,” says Poston. “The customer may be asked to take a photo of the mileage reading to confirm that it is not being used.”

If my deal comes to an end, can I get a new car?

Yes, you can – though the proviso is that you’ll need to find someone to sell it to you. Given most new and used car showrooms have been shut down now, that’s easier said than done.

“Few dealers are operating as normal. Most have furloughed staff and are operating on a skeleton team,” says James Baggott, the founder of Car Dealer Magazine, who’s been hosting daily live interviews with dealers around the country.

“Sales are few and far between and many can’t actually prepare or deliver any cars anyway during the lockdown. The only enquiries dealers are getting are from customers making cheeky offers – but few dealers will want to sell for less than they bought the cars for.”

However, Andrea Kinnear suggests that buyers wanting to finance a new car might have better luck if they talk directly to finance companies. “Our members are still open for business, so if a customer wants a car, they should get in touch as normal,” she says. “The lender will sort out the logistics – taking all the necessary precautions around delivery that you would expect.”

What if I don’t want to commit to another new car deal? Can I still buy used?

Yes, though you might want to act sooner rather than later to secure a deal, as those in the industry reckon lots of people will be thinking the same way once the lockdown is over, and that will push used car prices up. 

“The point about buying used is that used car prices are likely to rise,” says Baggott. “New car supply will dry up as factories will take a while to get going again so if there is demand – and that will rely on people being in jobs and feeling like they can commit – then used cars will invariably go up. With fewer cars going around, and fewer new car sales, it makes sense that prices could rise. But of course, no one knows for sure right now.”

Second-hand car dealerships have also largely closed Credit: Justin Kase z12z / Alamy 

Of course, the same provisos apply as with buying a new car. Finance companies seldom deal in used cars, so you’ll have to go direct to a dealer. And while they’ll be glad of your business right now, you won’t be able to pick up any car you buy until after the lockdown is over. Some might be able to deliver cars while keeping to the Government’s restrictions, but they’re relatively few and far between. 

What should I do if I can’t afford to keep up payments on my finance deal?

The advice is simple and clear: don’t just ignore it and hope it goes away. We can’t stress this enough. Talk to your finance company as soon as you can. 

By and large, lenders are taking a lenient view of customers who are struggling financially during this period. They might be able to help you out with a payment holiday or some other alternative solution. So if you aren’t able to make your repayments, seek help – don’t just wait for your car to be repossessed.

If money is really tight and you want out of your finance deal, you might be able to terminate it. Bear in mind that you’ll probably need to pay a fee, and if you haven’t already paid off at least half of everything that’s owed, including fees and balloon payments, you might be asked to make up that shortfall. 

However, if you do cancel your finance agreement, you’ll obviously need to return the car, or if that’s not possible, you probably won’t be able to drive it any more. It’ll therefore need to be in good condition, if you want to avoid damage fees. And of course, you’ll need to have access to alternative transport until you’re able to buy another car when the lockdown is over. 

Is your finance ending during lockdown? Or are you urgently trying to purchase a car? Let us know in the comment section below.