If you’re worried about missing car finance payments or have been told that your car could be repossessed, it’s important to understand what rights and options you may have. It is also important to understand how and when repossession can happen and how the process works.

In this article, we will explain when lenders can take a car back and what you can do if repossession is likely, or your car has already been repossessed. You may have options such as negotiating payments, but the options available to you depend on different factors and your specific situation.

This article focusses on hire purchase (HP) and conditional sale agreements. If you are worried about a car under a Bill of sale agreement (also known as a logbook loan), you can find more information in our Bill of sale guide. This article does not cover dealing with bailiffs(also known as enforcement agents). However, we  have articles on understanding and stopping bailiffs under the Support Topic on our website. You can also call National Debtline on 0808 808 4000 to get free professional help from National Debtline advisers.

It is best to get debt advice straightaway if:

• you are struggling with car finance payments;
• your lender is threatening or taking steps to repossess your car and you want to keep it; or
• your car has already been repossessed.

What is car repossession and when does it happen?

The term ‘car repossession’ is used to describe what happens when  a lender or creditor re-takes possession of a car that they own. In most cases car repossession happens because payments due under a contract (or credit agreement) have been missed. Repossession will usually only happen in certain circumstances and there are also rules that must be followed.

Why it is important to check your credit agreement

It is important to check your credit agreement because car finance repossession rights, including the rights that you and your lender have, will depend on the agreement you signed. The type of credit you use to get a car can also have an effect on what your lender can do if you miss payments.

Here are some common types of agreement and issues:

• Buying a car an under an ordinary loan agreement. You own the car before it is paid for. The car is your asset, and the lender cannot take the car back. They can only ask you to pay the money you owe under the agreement. However, if you do not pay or the lender takes court action your credit file could be affected.
• Buying a car an under a hire purchase (HP) or conditional sale agreement. These are special credit agreements which give the lender the power to take back the car if you miss payments. You cannot sell the car without the lender’s written permission, as you don’t own the car until you’ve paid off the agreement.
• Buying a car under other types of HP agreement. Some HP agreements may allow you to return the car for free rather than making a final balloon payment to complete the purchase. For cars, these agreements may sometimes be called ‘Personal Contract Purchase’ or PCP agreements). In most cases, your rights and the risks are essentially the same as with ordinary HP agreements.

For more information about other types of HP agreement, read our Hire Purchase debt guide. However, it is best to speak to an adviser if you have a PCP agreement. This is because of the way payments are structured in these agreements. An adviser can help you to confirm where you stand and give you advice tailored to your situation.

How the car repossession process works in England & Wales

Since April 2008, new HP and conditional sale agreements will normally be regulated by the Consumer Credit Act 1974 (CCA 1974). A common reason for an agreement not being regulated is if, for example, you have borrowed more than £25,000 and the agreement is for business purposes.

If your agreement is regulated, the CCA 1974 governs car repossession laws and how the car repossession process works. Alongside court rules and expectations, the CCA 1974 also gives you certain rights and protections. Two key protections under the CCA 1974 include:

• Since October 2008, your lender must send an arrears notice if you miss two payments and tell you where you can get help and advice. Failure to do this may mean your lender is unable to take further action against you or add interest and charges until they do so.
• If you have missed payments and you have not already reached the end of your agreement, your lender must also serve a default notice containing specific information and instructions. You will normally have a minimum of 14 days to fix things. If you do not, your lender can terminate your agreement in writing and ask for the total amount payable under your agreement, or take court action to repossess your car.

How many missed car payments before repossession?

This will depend on what your agreement says, but you normally need to miss two or three payments before a default notice is issued. Lenders don’t automatically go for repossession even if you don’t comply with a default notice.

If your car hasn’t been repossessed already, it isn’t too late to try to negotiate with your lender. Quite often, engaging with your lender may result in an reaching an agreement that stops your car being repossessed.

Can a lender repossess your car without a court order?

If you do not consent to repossession and you have paid at least one third of the total amount payable under your HP or conditional sale agreement, your lender will need a court order to repossess the car. The car is classed as ‘protected goods’ and the lender risks having to refund all the money you have paid under the agreement if they break this rule.

If you have paid less than a third, your lender can repossess the car if it is on a public road. The lender can also repossess the car from ‘any premises’ where you have given them permission to enter. However, the lender will need a court order if the car is on premises where you have not given them permission to enter.

Your rights and obligations, and those of your lender, will be set out in your agreement. Your rights during repossession, including those mentioned above, will be outlined in a box titled ‘Repossession: your rights.’

How to stop car repossession: are there any alternatives to repossession?

You need to pay in line with your agreement to keep possession of a car under a HP or conditional sale agreement. If you cannot afford to meet the contractual monthly payments and you want to keep the car, you will need to treat any arrears as a priority debt. There may be options to stop your car being repossessed at every stage until it is actually physically taken by the lender.

The options available to you depend on what you can realistically afford. To work this out, list your income and outgoings to complete an accurate budget. If you are in paid work or on benefits go to My Money Steps and click on the ‘Start now’ button. Follow the instructions to register and complete your budget.  

You can ask about reduced payments for a short period or try to get the agreement rescheduled over a longer period. However, your lender may only reach an agreement with you if you can pay your contractual monthly payments, plus an amount to clear the arrears in a reasonable time.  

There is also the option of engaging in the court process to stop your car being repossessed. The court has the power to agree to suspend the return of goods and allow you to keep the car if you can pay in reasonable instalments. You need to respond to the application for a return order (or a return of goods order) by filling in  the N9C admission form and sending it back to the court within 14 days. The court will decide at a hearing at your local county court hearing centre if needed. You must attend any hearing to avoid a decision going against you in your absence.

It can be difficult to know what to do, or what options you have, especially if your situation is complicated. National Debtline advisers can help if you are not sure that your budget figures are realistic. They can also give you practical advice and reassurance if your lender is threatening or taking court action or has already taken court action to repossess your car.

How you respond to an application for a return order and what can happen having attended any hearing is also covered in our Hire purchase debt guide. There is also a section on time orders. A time order is another way of asking the court to give you more time to pay if you are worried about falling behind or have already fallen behind with your payments on a regulated HP or conditional sale agreement. If granted, a time order can change the amount you have to pay each month and how long the agreement will last. In some cases, the court can also make an order to change the interest rate. If you want to learn more about time orders, you can also read our Time orders on hire purchase guide.

What is voluntary car repossession?

You may decide that it is best if the lender takes the car back because, for example, you don’t need the car, and you are not close to paying off your agreement to complete the purchase of the car so that it belongs to you.

If the lender has not already terminated the agreement, you can voluntarily terminate the agreement at any time before the last payment is due. It may save money to end the agreement this way rather than the lender terminating the agreement. Terminating the agreement yourself may also mean that you have more money available for your other ongoing bills.

If you end the agreement yourself, you will owe up to half the agreement, plus any arrears and reasonable charges if the car is damaged. If you have already paid over half the agreement when it is ended, and there are no arrears and the car is not damaged, there may be nothing further to pay. If the lender ends the agreement, there are different rules and you may have to pay back more. 

Read our Hire purchase debt guide to learn more about voluntary termination including calculating what you owe if you terminate your agreement. The guide also highlights the need to formally terminate your agreement in writing using our sample letter. If you do not terminate in writing before giving the car back, the lender may say that you have ‘surrendered’ your vehicle.  

Voluntary surrender will work out cheaper than voluntarily terminating your agreement in limited circumstances. For example, where:

• you haven’t had the car very long and so haven’t made many payments; and
• the car still has a high resale value.

What happens after a car is repossessed and how car repossession affects your credit rating

Whether you terminate the agreement yourself or the lender terminates the agreement, any remaining debt will be a non-priority debt.

Like other non-priority creditors, if you do not pay your lender might:

• continue to ask you to pay;
• pass the debt to a debt collector or debt collection agency to collect;
• add reasonable costs to cover the debt recovery; and
• decide to take court action in the County Court to get a county court judgment.

Your details may also be passed to a credit reference agency. This information is normally kept on your credit reference file for six years and can affect your ability to get credit in the future.

How to get debt advice

• National Debtline can help if you’re worried that your car could be repossessed, or you do not think that your lender has followed the rules correctly.
• We can help you put together a realistic and sustainable budget.
• We can give you free confidential advice to help you overcome any debt challenges that you face and find the best way to deal with your debts.

Visit our Get help now page for information on the different ways for you to get support.