The UK’s finance watchdog has confirmed that lenders will have to give payment breaks of up to three months to struggling car finance customers.
The Financial Conduct Authority (FCA) said it was introducing a package of measures from Monday, April 27 to help consumer credit customers - including car finance borrowers and people with payday loans.
As part of the package firms lending on deals such as PCP or HP agreements must provide a three-month payment freeze to any customer having temporary difficulties meeting finance or leasing payments due to coronavirus.
They must also not try to repossess any vehicle or end an agreement if the customer is in difficulty due to the outbreak and requires the use of the vehicle.
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Same rules for all
Christopher Woolard, interim chief executive at the FCA, 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.”
The FCA has said that lenders should not alter agreements in a way that is unfair, such as recalculating balloon payments based on a temporary depreciation of car prices caused by the coronavirus situation. It has also said that where a customer wants to keep their vehicle at the end of their PCP agreement, but does not have the cash to cover the balloon payment due to coronavirus-related payment difficulties, firms should work with the customer to find an appropriate solution.
However, it reminded customers that if they are facing financial difficulties they must contact their lender as soon as possible and be aware that any payment freeze now could lead to higher monthly repayments or longer loan terms after the freeze.
Gareth Shaw, Head of Money at Which?, said: “Many people will have been financially impacted by the coronavirus crisis, so these measures will provide some much-needed relief for those who are struggling.
“It’s vital that consumers are given clear information about how they can access this support when it is introduced, and that anyone experiencing financial hardship is aware of the options available to help them get through the challenging months ahead.”
James Fairclough, CEO of AA Cars added: "The millions of drivers with car finance deals will be greatly reassured to know the FCA has their back.
“In effect these guidelines mean that anyone who is worried about keeping up with their repayments because their income has been impacted by the Covid crisis will be entitled to a three-month payment holiday.
“Crucially, the FCA’s measures ensure every customer will be treated the same, whoever their lender is, and whatever type of finance plan they are on.
“The recommendation that consumers be allowed to keep their car where possible will also be particularly valuable for key workers who still rely on their vehicle to get to work.
“However it’s important to note that lenders will not make special arrangements automatically. The onus is on drivers to contact their lender before they run into difficulty.”