Car finance

If you are having problems making your car repayments you have several options. These depend on what type of finance agreement you have:

If you took out a hire purchase agreement
If you took out a personal loan

If you bought your vehicle for commercial purposes

If you took out a hire purchase agreement

With a hire purchase agreement, you don’t own the car until you make the last repayment, so you do not have the option of selling it and using the money to pay off the balance on your agreement. However, you can return the car and end the agreement at any time using the ‘half rule’.

If you have short-term financial difficulties and want to keep the car, talk to your finance company, explain your situation and ask them to restructure the agreement. If your finance company agrees to restructure the agreement, be aware of extra fees and interest. You should ask the finance company to confirm in writing what terms the restructuring will take and what impact this will have - if any - on your original hire purchase agreement. Read information on:

The 'half rule'

The ‘half-rule’ is part of the Consumer Credit Act, 1995 and gives you the right to end a hire purchase agreement at any time. Your documentation (the agreement) from the finance company must show the figure for half the hire purchase price of the car. The ‘half-rule’ allows you to end the hire purchase agreement and limits your liability to half the hire purchase price of the car.

You do not have to pay half the hire purchase price to the finance company before you return the car using the half rule. A recent High Court decision clarified this. If you have not paid half the hire purchase price you can still return the car. However, you will still owe the difference between the payments you have made and half the hire purchase price .

The example below shows how the half rule works.

Joe picked a car that cost €13,300 from a car dealer. The dealer arranged a five-year hire purchase agreement for Joe, and asked for a deposit of €1,000. The total hire purchase price is €16,790.69. In month 37 of the agreement, Joe wants to end the agreement but he doesn’t want to pay the balance and keep the car.   

Half the hire purchase price of €16,790.69

  €8,395.35

Total amount Joe has paid to date:
(Broken down as follows)

€10,465.12

 

 

Deposit

€1000.00

36 Repayments of €260.92

€9,393.12

Documentation fee  

€72.00  

 

Joe will also be responsible for any repair costs that are necessary and must pay any arrears that are due. 

 

Can you end your agreement using the half rule even if you are in arrears?

Yes - you can end your agreement and avail of the half rule while you are in arrears. However, you will still owe the arrears to the finance company. They may also have the right to charge you additional interest on your arrears - called surcharge interest. You need to check your original agreement to confirm the amount of interest they can charge on those arrears.

Steps to take when returning a car under the half rule:

  1. Write to your car finance provider or bank, informing them you want to return the car using the half rule - use our sample letter to help you. Don’t give instructions over the phone - putting it in writing makes it very clear how you want to end the agreement.
  2. Agree a pick up point or return the car yourself. If you don’t you may be charged a collection fee.
  3. Take pictures of the car, inside and out, to confirm the condition of the car so you are not liable for any additional costs if the car gets damaged after your return it. If there are damages to the car, you may want to get the repairs done by your own mechanic before you send it back or your provider may charge you for the cost of any repairs.
  4. It is very important to read any documentation sent out by your car finance company when you return your car using the half rule. Do not sign a ‘voluntary surrender form’ as you will give up your right to return the car under the half rule.
  5. Return the car to the garage or to whatever location is agreed between you and the finance company.

If you have damaged the car and are returning it under the half rule you must pay for the cost of any repairs. You will not need to make any further payments from the date you return the car. However, if your next payment has already been processed you should contact your provider to get a refund.

Can your car be repossessed?

Your car can be repossessed if you break the terms of the agreement, for example, by missing payments. If you have paid off less than one-third of the hire purchase price, the car finance company can take back the car without taking legal action against you. If you have paid more than one-third of the hire purchase price, a lender cannot repossess the car without taking legal action against you.

Your car cannot be repossessed from your home, regardless of how much money you have paid back.

If your car is repossessed, the finance company will generally sell the car and the money they get goes towards your debt but you will still have to make repayments until the entire debt is paid off. If you are in financial difficulties, make sure you know about your rights under the ‘half rule’ and try to tackle the situation before the finance company repossesses the car.

If your car is repossessed, you will usually have to pay extra costs on top of what you owe the finance company. These costs may include a repossession fee and towing or trace fees, if the finance company had to tow or find the car. 

What is voluntary surrender?

Voluntary surrender means that you volunteer to give the car back to the finance company but still have to pay what you owe - your debt does not disappear with the car. You sign a voluntary surrender form, the finance company sells the car and the money they get goes towards your debt but you will still have to make repayments until the entire debt is paid off.

Voluntary surrender will usually cost you far more than returning the car using the ‘half rule’, as with the half rule you only owe half the hire purchase price. Depending on how much you still owe the finance company, and how much the finance company gets for the car, you could owe far more money with voluntary surrender than the half rule.

If you took out a personal loan

If you took out a loan to buy your car then you own the car from the start. So, if you get into financial trouble, go back to your lender and explain your situation. Ask them to restructure the loan agreement, so that you can afford the repayments, but be aware of any extra fees and interest. You also have the option of selling the car and using the proceeds to pay off the balance of your loan, or part of it.

If you bought your vehicle for commercial purposes

Car finance rules may not apply if you bought a vehicle for commercial purposes, for example for a business. Note that car finance is different to a leasing agreement, which is commonly used to buy commercial vehicles or machinery. A leasing agreement is a legal contract between you and your provider.

If you have a vehicle for commercial purposes and are having trouble making repayments on your finance agreement, talk to your lender to see whether you can negotiate on the terms of the agreement. For example, will they extend the term, so your monthly repayments are reduced.

Read our three-step debt action plan to see if you can get your finances back on track.

If you are experiencing difficulty making your repayments and don’t know what to do, you can get help from the Money Advice and Budgeting Service (MABS). There are other organisations that can offer you support if you are in emotional distress, including the Samaritans.

We also have all the information you need to help you end your hire purchase agreement, including a sample letter, available to download (PDF 800Kb).

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