You must be so excited about owning the car. Applying for and qualifying for car finance is not easy. If you went through it smoothly, you are a winner by making regular payments and maintaining the car well. You can own it by the end of the agreement or switch it for a better one.

However, it is not as easy-peasy as it seems. Car finance is a long-term agreement that may get problematic if you miss a few payments. There could be multiple reasons behind this. It could cause a fall in income, sudden unemployment, business loss, etc.

In any of these events, one struggles to make regular payments. Missing payments endlessly is not the solution. It may only add up to the interest costs. If you believe that you may skip another, contact your lender. Discuss the probabilities that you may have regarding your car finance agreement. Leaving it in the middle may hurt your credit score, and you may have to clear the dues.

Thus, the best way to deal with it would be to seek a one-off solution with the lender. Some lenders may reduce the monthly payments per your existing income/ budget. At the same time, some may agree upon a payment holiday.

What is a car finance payment holiday?

A car payment holiday is a break from payments you need to make on a car finance agreement. The dealer or the car finance direct lender may agree not to receive any payment for some months. Interest costs continue to add up to the agreement. The payment deferment hence exceeds the car finance agreement terms. In such cases, the person ultimately pays more than he is entitled to.  A car finance payment holiday is also known as a car finance freeze. In this, you can freeze the payments for a maximum period of 6 months.

Who should consider a car finance break?

Individuals wanting to own the car fast may not want to go for a payment holiday. It is not ideal for every situation. Here are some situations where payment holiday can help you:

• Experiencing a short-term financial difficulty
• Businesses not receiving timely invoice clearance
• Low credit and do not want to impact it further
• Sudden unemployment
• Income reduction
• Additional but important liability
• Affected by natural calamity
• Income would be affected for a long time (over 8 months)

If you have minimal car payment dues but cannot pay, check loans for bad credit with no guarantor facility. This type of external finance solution requires no third-party interference in financial matters. You can pay the remaining amount without worrying about a low credit score. It would help you avoid additional interest and loan costs and clear the loan within the timeframe.

However, if your dues are high, leave it. In that case, a payment holiday may help stabilise your finances.

Do creditors provide car finance holidays to everyone?

No, it depends on personal circumstances, credit score, previous payment behaviour, and the remaining amount. Individuals witnessing credit score slowdown may get a car finance holiday. Lenders may help them prevent their credit scores from a further drop.

Here are other situations where the lender may approve a car finance holiday:

• Share the affordability to provide the complete amount by the month’s end
• Well-maintained credit and liabilities like- timely credit card bill payments or utility payments
• Possibility of the person getting a higher income soon
• Ongoing projects or probability proof of some
• The remaining amount balance is low

These may be some conditions under which the lender may agree to halt the payments. Conditions may differ from lender to lender and your credit profile.

Which car finance options offer payment holidays?

Not every car finance agreement allows you to leverage payment holidays. If you are on any one of the below car finance agreements, you may get one:

1. Hire Purchase– You want to buy a car by paying a deposit- you don’t own it until the last payment
2. Personal Contract Purchase– lower monthly payments than HP, you can change the car after agreement
3. Personal bank loan-If you go with a lender to buy a car on finance, you may get a payment holiday. Lenders help the customer get the required assistance when finances fall. You do not need to worry about payments for months. Moreover, you may get personalised options to reduce interest costs or pay the amount early if you got the money.

How to pay the accrued interest after the car finance holiday?

After the completion of the car finance payment holiday period, you can pay the accrued interest costs in the following ways:

• Pay in a lump sum
• Continue along with the payments afterwards

After the end of the payment holiday, the customer pays the entire amount along with the interest rates.

For example, if £5000 is the amount, the customer has to pay in 10 months. But the customer took a payment holiday of 3 months with 1% interest rates. As per rough calculation, the customer must pay (£5000+£50 = £5050 for 7 months). Previously, the payment amount per month was £500, which increased to £721 after the payment holiday.

The higher costs are the result of the credit score impact. The pending payments increase the interest costs, and thus, credit score falls.

How does a payment holiday affect your credit score?

Yes, taking a car finance payment holiday impacts your credit score. If you stop payments on the loan suddenly, the interest costs add up. Regular loan payments help you reduce liabilities and clear loans within the period. Alternatively, taking up a payment holiday for 3 months means not paying at all. It increases the repayments+, Interest costs+ additional costs for halting the payments.

An increase in debt downgrades the credit score.

The worst part is – payment holiday usually shows up on your credit report. If you have car finance on bad credit from a direct lender and seek a payment holiday, it could impact your credit score. You can lead the situation with early termination. If your finances improve and you can pay the loan amount with interest costs within 2 months than 3, you can prevent your credit score. It will not get recorded in the credit report. Otherwise, any lender you approach next may see the payment holiday status. It may impact the decision in some cases.

Individuals on a 0% car finance agreement may not get a car payment holiday. It already exempts one from paying interest on the agreement for a time frame.

Bottom line

These are some ways to get a Payment holiday on a car finance agreement. If you paid 50% of the car finance amount and can no longer pay it, you can terminate the agreement and hand back the car. It is only possible in Hire Purchase and PCP car finance. Alternatively, you can refinance the car finance agreement for a lower interest and payment. If both do not work, a payment holiday is the best for you. It grants sufficient time to allocate money and clear dues.