The financial regulator of the UK has announced that car finance companies must offer a three-month payment freeze to customers struggling to make instalments because of the Coronavirus (COVID-19) pandemic.
During this time, consumers wrestling with payments will not have their cars repossessed either.
The Financial Conduct Authority (FCA) also said that finance companies should not change contracts 'in a way that is unfair'.
For example, firms should not try to use temporary depreciation of car prices caused by the Coronavirus situation to recalculate Personal Contract Purchase (PCP) balloon payments at the end of the term. The FCA said that it 'will expect firms to act fairly where terms are adjusted.'
John Tracy, CEO of leading leasing firm Zen Auto, said: 'It's extremely good news for customers. This latest ruling from the FCA makes it extremely clear - it means it's not acceptable not to help customers.
'Customers can now phone up companies and unashamedly ask for the support they need. There's no need to feel like they're coming with their hat in their hand.'
'The biggest concern customers have is what about at the end of the three-months. We expect more guidance from the FCA in the future.'
Christopher Woolard, interim chief executive of 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.'
How to apply
James Fairclough, CEO of AA Cars, said: '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. Call centres are understandably busy at present, but many providers are offering payment holiday request forms online.
"Past experience shows that when faced with financial difficulties, some consumers simply stop making repayments on their finance deals. This is best avoided, as it can harm your credit rating. If you are struggling, contact your lender to ask for a payment holiday - don't just miss a scheduled payment.'
It's not just good news for consumers either. With a full FCA backing, car finance companies can no longer reposses cars. This is good news for them - as the lending companies they borrow money from in order to buy cars, also can't ask for payments in this case.
PCP, HP (Hire Purchase) and leasing agreements are big business in the UK, making up between 80-90% of new car purchases here.
Car companies, such as Ford, are already offering payment holidays to customers. Ford is even offering payment holidays of up to six-months to new customers too.
While one of the largest motor finance providers, Black Horse, which works with dealerships and even some smaller car companies like Tesla, said that it has already granted 60,000 payment holidays.
What this means for you
>> A three month payment freeze to customers who are having temporary difficulties meeting finance or leasing payments due to coronavirus. Customers who are experiencing temporary payment difficulties due to coronavirus and need to use their vehicles, will not have the vehicle repossessed.
>> Finance companies should not alter Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way that is unfair.
>> Where a customer wishes 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.
Also read:
>> Car payment holidays - explained