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Can I cancel my car finance or insurance during coronavirus crisis?

Time 11:58 am, March 23, 2020

Many people will be experiencing reduced income during the coronavirus crisis – but can you and should you cancel your car finance or car insurance during this time?

Sadly, firms are laying off workers or reducing their hours, meaning household budgets will be under strain. And the car dealer we have been speaking to have been fielding many calls about this very subject.

For many, the finance agreement they have on their car will represent a large monthly outgoing.

Before we go on too much, if you finance is coming to an end and you don’t know what to do this might be of interest: Read More: My car finance is coming to an end and dealers are closed – what do I do?

In this post, designed to advise dealers on what they can tell customers and advice the public, we look at what anyone struggling to make the repayments can do – and what your options are when it comes to car insurance.

Let’s look at car ownership first.

I can’t make my car finance payments at the moment because of coronavirus. What can I do?

The number-one rule for anyone in this situation is simple: talk to your lender. They are bound to take a more sympathetic view of borrowers who keep them in the loop rather than those who just default without any explanation. Don’t put your head in the sand and start missing payments, as this will affect your ability to get credit in future – not just for cars but all sorts of things. Dealers can suggest customers talk to their lenders and share contact details for customer services.

Will my car finance company help me out because of coronavirus?

Well, they will vary in their approach, but as the old saying goes, if you don’t ask, you don’t get. Perhaps you’ll be able to delay making some payments or maybe the period of the agreement could be extended. The advice is speak to your lender and don’t just cancel payments.

What about the different types of car finance – do different rules apply?

If you have a PCP or HP agreement (personal contract plan or hire purchase), it may be possible to refinance your deal at a lower interest rate or over a longer term. This will involve firstly obtaining a settlement fee from your lender – that’s the amount of money you need to give them to basically buy the car and own it outright. That sum could then be used as the basis for a fresh finance deal.

If you discover your car is worth more than the settlement fee, that puts you in a stronger position. As an alternative to refinancing, you could sell it, have some money left over – and start again, perhaps with a cheaper model. However, the market has contracted hugely.

Dealers will be able to help customers in these positions and could buy back the cars for stock.

If your car is worth less than the settlement fee, you’ll have to make up the financial difference if you decide you want to ‘give it back’.

I’m a PCH customer – does the above apply to me during the coronavirus crisis?

PCH finance plans (in other words, leases) are a slightly trickier area. A lease is basically a long-term rental, so you can’t obtain a settlement figure as such. Again, the answer to question one applies – talk to your finance house. In the current situation, let’s hope they take an understanding approach.

I once heard the phrase ‘voluntary termination’. Is that an option for me?

Yes – but only if you have paid off half of what you owe, typically. In such a situation, you are legally allowed to return your car with nothing more to pay under the 1974 Consumer Credit Act. However, sadly, you’re left with nothing. PCP customers are the least likely to benefit from this option because the bulk of the car’s cost is weighted towards the end of the term, In other words, just because a PCP customer is two years into a four-year deal, they probably won’t own half the car.

Be clear when talking to your finance house about voluntary termination. If they start talking about ‘voluntary surrender’, correct them. You could end up paying a lot more under that kind of agreement.

Should I swap my car for a cheaper one to save money during coronavirus crisis?

If you’re struggling with the payments but need the flexibility of car ownership, it’s worth considering. Some car dealers are already reporting a surge in demand for more reasonably priced cars.

Should I cancel my insurance to save money during this current crisis?

This is an easy one to answer – no! However, as at any time, there’s nothing to stop you shopping around for a cheaper policy or reducing your level of cover. Remember though – a third party policy is the bare minimum you need to drive legally in the UK – and that’s been the case since 1930. Bear in mind that such a policy only covers the other party’s damage and injuries if you’re to blame for any accident that you’re involved in.

I want to keep my car but take it off the road for a bit. What can I do?

Tell the DVLA you’re taking your vehicle off the road. But your car will need to be physically ‘off the road’ – on a driveway or in a garage, for example. This is sometimes called a ‘Statutory Off Road Notification’ (SORN). You’ll get a refund for any full months of remaining tax – and you won’t be able to use the vehicle on the road until you tax it again. You don’t need insurance for a car that is not being used so can cancel in this circumstance. However, if it gets stolen you will not get reimbursed for the loss.Mo



Dave Brown's avatar

Dave, production editor on Car Dealer Magazine, is a journalist with more than 30 years' experience in the worlds of newspapers, magazines and public relations.

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