Can’t afford car payments due to Covid – what now?

The coronavirus pandemic has created severe financial difficulty in many households across Scotland, with job losses and reduced hours making it impossible for some to meet even the most basic needs.

It’s not surprising, therefore, that car owners are finding it difficult to keep up with their finance payments, whether on a Personal Contract Purchase (PCP) deal or hire purchase (HP).

If you can’t afford your car repayments due to coronavirus you may be worried that the car will be repossessed, so is there anything you can do to regain your financial footing now the pandemic is easing slightly?

Covid support from car finance lenders

With such widespread financial adversity being experienced around the UK due to Covid-19, lenders should work with you to come to an acceptable payment arrangement. It’s important to contact your car finance lender as soon as possible, however - preferably before a payment is missed.

They might be able to offer lower monthly payments for a period of time, for instance, payment deferral, or a reduced rate of interest, to help you get back on track with your payments.

It’s also helpful to obtain professional support when dealing with car financiers and other lenders. Allowing a money advisor or licensed insolvency practitioner (IP) to negotiate on your behalf can instil confidence in these lenders that you can afford to pay the sum being offered.

Various official debt solutions also exist in Scotland if informal negotiations don’t work, and one of these is a government backed scheme called DAS.

Can DAS help with car payment arrears due to Covid-19?

The Debt Arrangement Scheme (DAS) allows you to pay off all your debt without having to formally enter insolvency. Although falling behind with any repayments has a negative impact on your credit score, repaying your debts in full is an important factor.

You would need to obtain professional help from an approved money advisor or licensed IP before going ahead with DAS, but the fact that interest and charges on the debts are frozen can help considerably when repaying the monies you owe.

Scottish Trust Deed

A Scottish Trust Deed is a formal arrangement with creditors to repay a proportion of your debts, and may be suitable for your car payments. Scottish Trust Deeds typically last for four years, and are appropriate if you owe debts of over £5,000.

Any debts that remain at the end of the Trust Deed can be written off, leaving you free of debt and financially more stable. A Scottish Trust Deed offers an alternative to sequestration, which is bankruptcy in Scotland, but what if sequestration is the only option?

Sequestration if car payments and other debts are unmanageable

Sometimes when a debt situation is so bad, sequestration is the only option. It means that you hand over control of your assets to a Trustee, who sells them to repay your car financier and other creditors.

Sequestration typically lasts for 12 months, but may require further contributions if you earn a regular income and have money remaining after all your essential living costs have been taken into account.

If you can’t afford to make your car payments due to Covid, Scotland Debt Solutions can provide the independent support you need. We specialise in helping Scottish residents to escape debt, and can offer you a free, same-day meeting. Please get in touch with one of the team – we work from local offices around Scotland.