Car finance customers will still struggle to pay monthly payments after coronavirus with the market a “ticking time bomb”, says the expert. Finance payment holidays were put into force from yesterday with motorists able to request a short delay on any vehicle lease contracts if they are in financial difficulty.
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The Financial Conduct Authority (FCA) says any freezes will last for a minimum of three months but firms would be able to extend this at their own discretion.
FCA officials have already praised many firms for offering extra protection for motorists as companies battle to protect their customers amid the pandemic.
However, Alex Buttle, director of car selling site Motoroway.co.uk believes the updates will do little to help customers in the long run.
He said: “The FCA has taken the right steps to assist millions of car owners struggling to meet their monthly car loan payments.
“But this is a short term support measure which won’t address a longer term problem.
“The specialised car loans market has exploded in the past few years, with Personal Contract Plans the main culprit, and very little has been done to reign in this mounting debt pile.”
FCA advice says firms should not alter their customers’ Personal Contract Purchase (PCP) or Personal Contract Hire (PCH) agreements in a way which could be considered unfair.
The group expects firms to work with customers to find appropriate solutions for those that cannot pay certain charges.
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This has been put into place to stop firms repossessing vehicles while motorists rely on it to get to work or to collect essential items.
Motorists nearing the end of their contact may be hit hardest with monthly charges and balloon payments often higher at this point compared to the start.
Firms have been urged to come to a solution for customers who do not have the money to pay balloon payments but still wish to keep their vehicles at the end of their PCP contract.
However, Alex Buttle said the nature of finance agreements would mean many would still struggle to cover payments after the virus has ended.
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He said: “The majority of new cars are now bought with car finance, and PCPs are by far the most popular option, with many consumers enticed to stretch themselves and sign lengthy contracts on expensive vehicles they can ill afford.
“The reality is that long after coronavirus has been eradicated, millions of car owners will still be struggling to cover their monthly loan payments.
“The PCP market is a ticking time bomb waiting to explode and Covid-19 may well be the event that lights the fuse.”
Motorists who cannot pay their monthly car finance costs are urged to contact their lender immediately.
Companies will then be inclined to offer the extension which will last for a period of three months regardless of whether the lockdown is lifted.
Experts have warned against simply not paying your finance bills as this could lead to your contract being terminated and your vehicle repossessed.
Being put on a payment plan or having your costs temporarily reduced keeps you on side with your lender and prevents your car being taken away.
AA Cars expert, James Fairclough said the FCA must ensure consumers understand “there is no shame” in experiencing financial stress during this period.
He added: “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.”
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