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Coronavirus: Can I cancel my car finance or insurance?

For the many who’ve found themselves with a reduced income because of the coronavirus lockdown, cutting costs is becoming a vital move.

Car insurance and finance payments can represent a large chunk of your monthly outgoings, and with the government restricting movement, it might seem like a pointless extravagance to pay so much for an object you can’t use.

But should your insurance and finance payments be cut? Here are answers to some of the questions you might have…

I can’t afford my finance payments at the moment, what can I do?

The first and most important thing to do is speak to your lender. While there’s technically nothing to say you shouldn’t have to make repayments in the current situation, being upfront and honest with the provider will let them help you. If you try to grin and bear it and start missing payments, that’s when things can escalate.

In the unlikely event your lender is not sympathetic to the situation, The Motor Ombudsman says to contact them and they can put you in touch with people who can help.

Will it make a difference depending on the type of finance I have?

There are different types of finance, with PCP or HP (personal contract plan or hire purchase) likely the best to have in this situation. Because you’re paying off the car with a view to owning it at the end, you can ask for a settlement figure. This essentially means how much the car is worth now, allowing you to either sell it to help pay off the remaining payments or, if the car is worth more than projected, refinance at a better rate.

You’ll have to speak to the lender, though, as you don’t own the car until you’ve finished paying for it. Therefore, you’ll need to find a way to sell it through them, or ask them to buy it back, though they’re under no obligation to do so.

Budget 2010
Budget 2010

Speaking to the lender is important if you want to keep the car, because they might be willing to offer payment holidays or reduced rates to be made up for later.

What about PCH customers?

PCH (personal contract hire), or leasing, is a little more complicated. Because you’re paying to merely ‘borrow’ the car, it can be more difficult to organise a refinancing package. If you’re leasing, it’s especially important to speak to the lender, because they might have a plan for coronavirus-affected customers.

What is voluntary termination and does it apply here?

Voluntary termination under the 1974 Consumer Credit Act allows you to return the car without charge if you’ve paid off half of what you owe.

This can be an excellent option if you’re in a desperate situation and simply need to cut costs, but particularly for PCP customers, whose payments are weighted towards the final balloon payment, it can result in a massive loss in the long term. That’s because at the end of the deal you no longer have the choice of refinancing the vehicle to keep it or use any equity towards a replacement. The car is just gone.

Also, be clear with the lender that you want voluntary termination, because if they start going down the route of ‘voluntary surrender’ you could end up paying a lot more.

Should I cancel my insurance?

Car insurance and finance
(PA)

If you still plan on driving your car, then the short answer is no. It might save you money in the short term, but if you get caught you could be disqualified from driving for up to 12 months with a massive fine. Remember, if you need to get behind the wheel then you need insurance.

If you’re taking your car off the road, though, it could be a good idea, but make sure you read the small print. Cancelling your insurance could incur charges, so make sure you know what they are first to make sure it’s worth it.

How do I take my car off the road?

If you don’t need your car, taking it off the road is a great way to reduce all of your motoring-related costs. You’ll need to apply for a statutory off road notice (SORN) and make sure the car is stored on a driveway, garage or private land – it can’t be parked on the road.