Santander Consumer Finance - Reducing monthly payments

Jb_1987

Good afternoon

I’m after some advice regarding my car finance.

I took out a credit agreement for a second hand car in 2019 with Santander Consumer Finance. At the time my credit rating wasn’t great so I ended up agreeing to slightly higher monthly payment than I ideally wanted. 

Fast forward a couple of years and due to a change in circumstances I can no longer afford the monthly payment and have slipped in to a couple of months arrears. 

I have discussed this with the finance provider and they have gone through the options with me, none of which seem reasonable. The settlement figure of the vehicle is £16k and the vehicle is worth £13k, so I have around £3k negative equity currently, I’m also not half way through the agreement yet. 

The options I have been given are:

1. Go to a car dealership, find a more affordable vehicle and part-exchange.
- I have been to numerous garages and none of them have been able to help. When I find a ‘more affordable vehicle’ by the time they refinance it with the negative equity included the monthly payment works out about the same as what I pay now but I’d have a worse vehicle. So this option does not appear to work out.

2. Voluntary Surrender
- I return the vehicle to them, they sell it at auction (assumably for less than the vehicles value), offset that against the finance and then I’m left liable for the remaining finance. So basically I’ll end up with no vehicle and a bill for around £6k. This will also show as a default on my credit for seven years and drop my rating 100 points. Again, not going to work.

3. Re-schedule (this is the option I was going to take, but having received the documents and looked at the interest it adds on, I’m shocked)
Basically they’d reduce my monthly payment by 50% for 12mths, clear the arrears and extend the overall agreement by 12mths (this is how it was explained to me). I asked what was the catch, they told me a small amount of interest would be added on as the agreement would be extended. I said ok that doesn’t sound too bad. However, having received the documents and read through the small print it reads that the overall amount payable would then be £19,365.87. And after the 12mths reduced payments it then adds almost £100 on top of the monthly payment I already could not afford! So this isn’t really as they made it sound over the phone and would be a temporary fix that will bite me in the backside 12mths down the line.

So, can anyone offer any advice? I am happy to keep the vehicle, I just need to reduce the monthly figure, and the provider has stated that is not an option. I need to keep a vehicle for work etc. And I don’t want to negatively affect my credit rating anymore.

Any advice is greatly appreciated and I hope I’ve explained this simply enough! Thank you 

Nearlyold

What's the interest rate you are currently paying? What's the arrears in £s? Do you mean you need a vehicle to travel to work or you need a vehicle to do your job?

Nobbie1967

Sounds like you need to go back to the finance provider and get them to reschedule it in a different way. Presumably you can afford more than 50% of the monthly payment? What can you afford? Ask them to reschedule the loan with this repayment and clear the arrears. See how long that extends the agreement.

AdrianC

Ultimately, you signed up to borrow a certain amount of money at a certain rate of interest.

If you reduce the monthly payments, with no other adjustment, then are you hoping to pay back less capital than you borrowed and absolutely no interest, or just all the capital but a big chunk less interest...?

What's in that for the financier?

Yes, of course if you stretch the contract from 4yrs to 5yrs, you'll pay more interest all-in, and that's why the total amount payable is higher. Deferring 50% of the next year's payments means you're borrowing a chunk more for longer - you're paying 6mo-worth over 12mo, then the remaining 18mo-worth over 2yrs.

What's the APR on the finance?

knightstyle

IMO you must sell the car, it will only go down in value from now, at the moment second hand cars are holding their prices but I do not believe this will last long.
OK you will still have a debt but you can get a lower interest loan to repay this.  
Do you really need a car for a short while?  Use busses and save for an old car you can buy cash.

AdrianC

knightstyle said:

...but you can get a lower interest loan to repay this. 

I suspect the old catch-22 of finance prevents that.

If you're not coping financially, so have a number of missed payments, nobody will lend to you at a lower rate, because you're a higher risk.

The simplest way out of this is to get out as cheaply as possible. If that means crystallising the £3k loss now, and buying a £1k shed, then so be it. Beggars cannot be choosers.

The OP does not say what the current monthlies are, or the total still to repay - but we know it's above £16k settlement and below £19.4k refinanced total. So let's call it £18k that needs repaying on this car in the next two years (£750/mo), or £19.4k over three (£538/mo).

jimjames

So in the example AdrianC gives - sell now & clearing at £3k loss plus buying £1k shed would give you £4k you need to repay. Even over 2 years that's under £200 per month, massively less than the options to keep.

It might seem bad to owe £3k for a car you no longer own but it's still far less than if you keep it.

Jb_1987

Morning guys. Thank you for the replies.

Interest rate is 9.1%

Arrears is £1558.96

I require the vehicle as I travel all over the county, work all times of the day/night, live in a village and have two young children.

Settlement figure: £16,211.57

Re-Scheduling:
12mths @ £194.87
36mths @ £475
adds £3349.90 in interest

I currently pay £390pm. With our current circumstances I can afford £200-£250pm. In the next year both kids will be in school and my partner will be back to work, which will improve our finances. So ideally I need a temporary fix that gets us through this rough patch whilst things are tight. Hence why I thought the rescheduling would be suitable, but that amount of interest seems excessive.

If I were to sell the vehicle now I’m going to end up with a bill for the remaining finance which will have to be an additional monthly payment. My credit rating won’t allow me to finance another vehicle at a decent rate, and I don’t currently have the cash to buy something outright. 

Apologies if it sounds like I’m moaning. I’m aware I agreed to the finance in the first place, but circumstances do change and my change is going to be temporary for about 12mths. 

ontheroad1970

I don't see a solution other than the one that Santander have suggested.  The rescheduling appears tone the only temporary fix until  your wife returns to work.  

Sandtree

Jb_1987 said:

I return the vehicle to them, they sell it at auction (assumably for less than the vehicles value), offset that against the finance and then I’m left liable for the remaining finance. So basically I’ll end up with no vehicle and a bill for around £6k. This will also show as a default on my credit for seven years and drop my rating 100 points. 

Your "credit score" is a made up number by the marketing department of credit reference agencies, no lender sees it so it can drop 10,000 points and it won't make a difference. Lenders see your credit history and make up their own minds made on it not the reference agencies score for you. 

born_again

Sandtree said:

Your "credit score" is a made up number by the marketing department of credit reference agencies, no lender sees it so it can drop 10,000 points and it won't make a difference. Lenders see your credit history and make up their own minds made on it not the reference agencies score for you. 

With 4 months missed payments. It is going to be a struggle to get any loan. As well as any extra markers Santander put on the file in relation to asking for reduced payments.