Corona & Car Finance: What you need to know now

Corona & Car Finance: What you need to know now

13 November 2020 Concept Car

These are bad times if you need to pay off a car loan.

Only a year ago, a virus set the world on fire. There were heartbreaking scenes from hospitals, the end of social life as we knew it and drastic measures to curb the spread of the pandemic.

Twelve months later, we have all got used to life in Covid 19 times. Still, things have not become any easier.

Quite on the contrary.

Now the second lockdown is upon us, we are nearing a critical point. If you want to know how you can keep up your loan repayments, read on. We’ve compiled everything you need to know on financial Corona support.

One thing’s for sure: Right now, it really helps to know as much about this as possible.

The emergency measure from the first lockdown are back.

In many respects, very little has changed from March. Admittedly, there is less panic. Despite the lockdown announcement, stocks of staple foods in stores are still strong.

Other than that, though, the problems are pretty much the same.

For many in the UK, the lockdown has brought along with it a palpable reduction in income or even a job loss. If you were paying off a car loan, this instantly spelled trouble.

To help those with payment issues cope with the situation, the government introduced a variety of measures. Overall, these have proven to be effective. Which is why they are now back. Let’s take a closer look at them.

Job Retention Scheme

Not all industries have been hit equally hard by the pandemic. Some, such as the Online economy, have actually grown.

Overall, however, the impact of Corona has been desastrous. Unless a vaccine or reliable medicines are found fast, the effects are sure to be even more severe.

To this end, job retention schemes are intended to prevent too many people from suffering from the results of unemployment.

This is how they work:

  • If you are still employed, your employer can reduce your workload and pay you a lower wage. The government will pay for the difference with your regular loan. This is a great concept to support both employers and employees.
  • If you’ve been laid off temporarily, there is a scheme as part of which the government will pay 80% of your regular wage. Your employer won’t have to pay wages, but commit to covering national insurance and support your pension plan. As soon as the situation improves, they can instantly re-install you in your former position.

This new scheme is already in place and should help protect you from the severe impact of a full-blown redundancy.

Payment holidays

Payment holidays - Concept Car CreditFor anyone with a car credit, Covid 19 has been a disaster.

Coughing up 300 each month on your regular loan is hard enough. Having to do it with a potentially severely reduced income can be next to impossible.

Job retention schemes have done a lot to mitigate the impact of the pandemic on car finance. But they are no panacea and won’t be in place forever. The first job retention scheme was already significantly scaled back as of August. If a similar reduction is planned this time, you should expect painful income cuts by February.

Thankfully, payment holidays have proven a sensible temporary respite for many borrowers. The regulations have meant that you can ask for a freeze of your interest payments for a period of up to six months. Within this time, you do not need to make any payments on your credit.

Will the Corona payment holiday affect my credit score?

No, it won’t. This is one of the great benefits of these programs.

A payment deferral won’t result in a bad credit rating, although it will be visible in your history. Whether or not future lenders will regard it as a reason to reduce your creditworthiness is therefore not quite certain.

However, a payment holiday is not an ideal solution by any means.

Although you no longer need to make any payments during the freeze period, interest on the loan will still accrue. So once the holiday is over, your monthly contribution may go up or you may have to pay back the loan for a longer period and you’ll most likely have to pay more in interest overall.

A payment holiday should therefore be a measure of last resort. If you can at least pay back a little, you should consider a simple reduction in your payments or not applying for the full six months you are entitled to.

What else can you do?

The aforementioned government measures have helped tremendously in reducing tension for millions in the UK affected financially by the pandemic.

But you can get pro-active, too. Here are a few steps you can take to improve your situation:

  • Talk to your bank. The UK financial regulator has estimated that up to 12 million people in this country are struggling with payments and loans due to Corona. That is a shockingly high number. Banks can play a pivotal role in this situation by providing emergency support and easing their credit application criteria. Talk to your local bank manager to discuss your options.
  • Talk to your dealer. Obviously, if your dealer provided you with car finance, it makes sense to talk to them directly. Your dealer may be able to take simple measures to ease your financial burden, e.g. by adjusting your payment plan.

How to adjust your payment plan

How to adjust your payment plan - Concept Car CreditIn theory, you can suggest any random payment reduction. In practise, some have proven more popular than others. If you want to come to your meeting with your bank manager or dealer prepared, you should know about the following options:

  • Full payment holiday: You no longer make any payments whatsoever for a certain time. Interest, as mentioned, will accrue.
  • Skipping loan payments a month or two: These temporary payment holidays can help you re-organise yourself and get your finances back in order again. Whenever this is possible, this is your best option by far.
  • No interest payments: Instead of taking out a holiday, you can also accept lower monthly contributions. Just making the nominal payments without interest may not sound like a lot. But it’s better than nothing.
  • Interest only payments: Sometimes also called capital only payments, this is another interesting alternative. In this version, you only pay the interest due on your car. The idea is that you at least give the dealer or bank their share. Once you resume your regular schedule, you will obviously have to pay for longer. But at least you will not not have to pay skyhigh interest payments.
  • Token payments: Is a tiny bit really better than nothing? We can’t really decide. Token payments are a signal that you’re not entirely defaulting on your loan yet. But in the end, what good are a few Pounds more or less to a dealer or bank? Better to take a real break and get back on your feet again.

Car finance in Corona times with Concept Car Credit

CCC is your ideal car finance partner in these hard times. We have many years of experience dealing with bad credit car loans, which helps us support you during the pandemic.

Our finance plans are realistic from the start. Instead of saddling you with fast-track payment schemes with skyhigh loan repayments, we focus on what you can afford. The possibility of future financial shocks is always already part of our calculations.

Talk to us now if you are looking for a car. Our digital showroom remains open, our customer service remains at your disposal and we have found simple yet effective ways of getting our cars to you safely.

Talk to us now about your options. Use our contact form or give us a call at 0800 093 3385.

13 November 2020 Concept Car