Priority or Non Priority Debt: Car

Car finance debt

If you are falling behind on payments for a car on finance, it can feel very worrying, especially if you rely on your car to get to work or access your community. Whether your car finance debt is treated as a priority or non-priority debt depends on your personal situation. In remote locations, having a car is essential to get to work or access communities, which may make it a priority.

The key thing to understand is that with Hire Purchase (HP) or Personal Contract Purchase (PCP), the finance company remains the legal owner of the car until you make the final payment. This means they have specific rights to take the car back if you stop paying. But you also have important legal protections.

Your rights under the Consumer Credit Act 1974

Debt recovery for car finance in England is governed by the Consumer Credit Act 1974. The protections you have depend on how much of the agreement you have already paid.

The one-third rule (protected goods)

If you have paid one-third or more of the total amount payable, your car becomes what is called "protected goods". This means the finance company must get a court order (known as a "return order") before they can repossess it. They cannot take it without your voluntary consent.

If you have paid less than one-third, the lender may be able to repossess the car without a court order if it is parked on a public road. However, they still need a court order or your consent to enter private premises, such as your driveway or garage. This applies in England and Wales.

The half rule (voluntary termination)

You have a statutory right to end the agreement early if you have paid 50% of the total amount payable. This total includes interest, fees, and the balloon payment for PCP agreements.

• If you have paid less than 50%, you can still terminate, but you will need to pay the difference to reach the 50% mark
• The car must be returned in a condition that meets "fair wear and tear" guidelines

This can be a useful option if the car is no longer worth what you owe, or if you simply cannot afford the payments any more.

Bailiffs and car finance

If bailiffs come to your home about a different debt (such as council tax or credit card debt), they generally cannot seize a car that is on HP or PCP. This is because the car does not legally belong to you. It belongs to the finance company.

• Keep proof of your finance agreement handy. If a bailiff tries to take the car, show them a copy of your contract or a bank statement showing the finance payments
• If the car is repossessed and sold at auction for less than what you owe, you will still be liable for the remaining balance, plus any recovery and auction costs

What you can do

• Contact the finance company early. If you are struggling, let them know before you miss payments. They may be able to offer a payment holiday or reduced payments
• Check how much you have paid. This determines your rights under the one-third rule and the half rule
• Do not voluntarily hand back the car without getting advice first. If your car is protected goods, giving it back voluntarily means you lose that protection
• Contact us for free advice. We can look at your full situation and help you understand your options

Get help

• Email us at info@youthlegal.org.uk
• Call us on 020 3195 1906
• Fill in our contact form and we'll get back to you

All our advice is free and confidential.