Drivers struggling with car repayments to get break on loan costs

Car payments refunds

Millions of drivers with car loans could be granted a three-month payment holiday if they are affected by Covid-19, the City watchdog has said.

The Financial Conduct Authority yesterday said that it planned to extend new protections designed to help borrowers to the motor finance industry, which is worth nearly £40 billion a year.

It told some lenders, including credit card firms, doorstep lenders and high-interest guarantor lenders, to offer borrowers a three-month payment freeze if they were unable to meet repayments. The new rules will apply from next Tuesday to give firms time to cope with requests from customers. The authority said anyone applying for a payment holiday would not have their credit files marked.

A similar stop-gap for those with motoring finance deals will be announced next week.

It comes after the regulator urged mortgage lenders to offer payment holidays to homeowners who are struggling with monthly bills due to the pandemic.

Nearly one million people took out car loans last year, according to the Finance and Leasing Association. The market for buying new and used cars on credit was worth £38 billion last year, making up nearly one-sixth of all consumer credit.

Personal contract purchases are the most common way to buy a new or used car on credit, and involve paying a deposit (such as £2,000) and paying interest on the purchase value. After a few years, the borrower can pay the amount the car is worth, which would be less than the original purchase price or hand the car back.

Christopher Woolard, the regulator’s chief executive, said: “We know many people are suffering financial pressures brought on as a result of the pandemic.”

He said the measures were temporary and only applied to people directly impacted by coronavirus and were designed to provide people with short-term financial support.