The COVID-19 pandemic has put financial stress on millions of Brits across the country, with unemployment benefit claims recently jumping to the highest levels in more than 20 years. As a result, the Financial Conduct Authority (FCA) has been rolling out a wave of relief packages, including payment holidays on car finance.

The scheme kicked off in March and was recently extended until October 31, offering Brits the option to defer more than six months’ worth of repayments. Read on for some advice on how the extended payment holiday works and whether you should take one.

Hugely popular scheme

As the name suggests, the car finance payment holiday allows you to take a break on payments for your car finance agreement. “If you’ve a car loan, PCP, leasing or HP deal and are struggling to pay due to coronavirus, you can get a new or extended three month payment holidays on request,” explains Martin Lewis, founder of consumer finance information website MoneySavingExpert. “They can’t repossess cars for non-payment until October 31.”

The latest data from lenders’ trade body UK Finance confirms the scheme has been hugely popular, with more than 1.9 million Brits taking advantage of payment holidays for mortgages alone. While the package is a blessing for Brits struggling to repay loans, experts stress caution should be used when deciding whether to apply for a car finance payment holiday.

A credit file footprint

The COVID-19 pandemic may have reimagined the lending landscape but that doesn’t mean your credit file will remain unaffected. While the Chancellor and FCA have confirmed car finance holidays won’t show up on your credit file, lenders can still find out if you’ve applied for deferrals and use this to negatively assess your application.

This can be done by sourcing information via a third party or looking for inconsistencies in your payment history. The FCA has confirmed this is legal and has even warned consumers about the potentially negative impacts of payment holidays. So, while a little relief in the short term is tempting, a payment holiday could impact your chances of securing loans in the future.

“If you NEED one, take it, but ONLY take it if you need it,” stresses Lewis.

Deferral, not holiday

While the scheme is marketed as a payment holiday this term can be deceiving. Holiday implies a carefree system where borrowers can forget about a payment. In reality, payments are simply deferred and can result in larger debts when the car finance holiday is over.

Factoring in interest

The option to defer payments will be hugely helpful for some. However, for those who can afford to continue paying, the advice is to do so. Excluding payday loan holidays, interest isn’t frozen and will continue to accumulate over the course of the car finance payment holiday.

Usually, repayments lower the total amount owed and gradually bring down the interest. By freezing payments you’re not lowering the total amount and as a result, interest starts to climb, and the loan will cost you more in the long run.

Car finance payment holidays have provided much-needed relief to many Brits during the COVID-19 pandemic but at the same time, they’ve also tempted many borrowers who don’t need assistance. Before applying, the best thing to do is crunch the numbers, talk to your lender and make an educated decision about whether a car finance holiday is the right decision for you. If you’re in trouble, the National Debtline is a fantastic resource.

How we can help

Whether you’re in need of a payment holiday or you’re looking to upgrade your car as things get back up and running, the team at My Car Credit is here to help. Get in touch with our team to discuss your requirements in more depth.

Rates from 9.9% APR. Representative APR 12.4%

Evolution Funding Ltd T/A My Car Credit

My Credit Rating


  • You are a home owner
  • You have been on the electoral role for a long period of time
  • You have current credit arrangements and mortgage with no defaults
  • You have no CCJs, credit arrears or missed payments
  • You rarely apply for credit
  • You are employed or self-employed


  • You are on the electoral role
  • You are a home owner or long standing tenant
  • You have a stable employment history
  • You have current credit arrangements with occasional missed payments
  • You have no CCJs


  • You are or have recently been on the electoral role
  • You may have recently changed address
  • You may have occasional missed payments
  • You may have an old CCJ
  • You may have regularly applied for credit


  • You may have had frequent changes in address
  • You may not be traceable on the voters roll
  • You may have exceeded credit card limits
  • You may have missed payments on current agreements
  • You may have had a CCJ in the past


  • You may not be traceable on the voters roll
  • Your credit cards are over their limits
  • You have recent CCJs
  • You may have been refused credit elsewhere
  • You may be in a debt management plan

X monthly repayments of

Typical rate

Loan amount

Total payable




*for illustration purposes only

No impact on your credit score*

Representative Example

Borrowing £7,500 at a representative APR of 12.4%, annual interest rate (fixed) 12.36%, 47 monthly payments of £196.44 followed by 1 payment of £206.44 (incl. estimated £10 option to purchase fee), a deposit of £0.00, total cost of credit is £1,939.12, total amount payable is £9,439.12.

Evolution Funding Limited, trading as My Car Credit, is a credit broker and not a lender.

Please ensure you can afford the repayments for the duration of the loan before entering into a credit agreement.

*Initial application is a soft search. Should you progress, some lenders may perform a hard search on your credit file.

Require more help?

Got a question you can’t find the answer to, or need some advice and guidance around taking out car finance? Our Car Credit Specialists are friendly, experienced, and here to help so get in touch today!