Customers unable to keep up with high-cost credit payments do not have to pay anything until November under new guidance from the City watchdog.
The Financial Conduct Authority has confirmed that firms must extend payment freezes due to end this month until October 31. The extension covers all companies that offer high-cost credit including motor finance and rent-to own, buy-now pay-later schemes and pawnbrokers.
Firms have to offer a further payment deferral or reduce payments to an amount the customer can afford. People yet to request a payment holiday are able to do so until October 31. Taking up the option of payment freezes or partial payment freezes should not affect credit ratings.
Repossessions of cars for motor finance and rent-to-own customers have also been banned until the end of October, while the low-rates promotional period on buy-now pay-later schemes have been extended.
Christopher Woolard of the FCA said: "Our measures ensure that people who are still facing temporary payment difficulties because of this pandemic continue to have access to the help they need."
However, missed payments will need to be repaid in the future, so if possible, customers should return to full payments if able to do so, he said.
The news could be a blow for the struggling car finance industry, with concerns over an impending crisis in the £75bn loan sector.
Figures from the the Finance and Leasing Association, whose members arrange £48bn of car financing deals a year, showed a 78pc fall in deals in May compared to the previous year. This was an improvement on record-low April figures, which showed car finance deals fell 94pc on the previous year. In total deals over the past five months have dropped 41pc compared to last year.
Adrian Dally, of the FLA, said: “Motor finance lenders have been providing unprecedented levels of forbearance to customers since the start of the crisis, but it is now time for the Government to support the industry so that it is able to continue to offer finance to consumers and businesses at affordable rates during the recovery.”