Can you modify a financed car?

When you think of a ‘modified car’, you might think about big aftermarket spoilers, alloy wheels, and performance upgrades – but in actual fact, modifications can be much more subtle than this.

Would you consider a tow-bar a modification? An upgraded stereo? Swapping standard lights for LED lights?
There’s a good chance your finance company will consider all of these things to be ‘modifications’ – so whether you’re preparing your vehicle for a show, or you’re simply making a couple of adjustments, you need to know where you stand.

What’s more, it’s important you know what can happen if you break the rules.

To be clear, the following advice is based on a loan secured against a vehicle. Generally, this will be as part of a hire purchase agreement, personal contract purchase (PCP) deal, or any other kind of loan where the car is considered security. 

Can you modify a car on HP?

Whether you’ve bought a new or pre-owned car using a finance agreement, there’s every chance you’ll want to make a few adjustments to make the car your own.

The trouble is, when you dig into the terms and conditions of your agreement, you might find that the finance company you’re using don’t allow any changes to the vehicle.

Why?

Well, it’s useful to think about things from the finance company’s point of view. 

With many finance products, you don’t actually own the car until you’ve made your final payment – whether that’s the option to purchase on a PCP deal – or your final monthly payment on a traditional hire purchase plan. 

In reality, this means you’re not actually modifying your own car – but a car that, for the time being at least, belongs to the finance company. 

Now, it’s not as if someone from the finance company is going to come to your house and drive your car simply because they legally own it – but it does make things complicated when the value of the car is involved. Your car is considered ‘security’ for the loan you have attached to it. If you were ever to stop paying for the car, the loan company can collect it, sell it, and recoup some (or sometimes all) of the money you owe. If you’ve made modifications, this means you’ve potentially changed the value of the car that they consider their security.

Can I modify my car on finance if it increases the value then?

Since doing anything that might reduce that value of the car you’ve bought on finance or PCP is going to cause a problem, you’re probably wondering if you are allowed to modify a financed car if the changes you’re planning add to the value.
Again, this is a difficult area.

Let’s say you take a new Corsa VXR and decide to splash some cash on performance upgrades. You spend a small fortune with a specialist Vauxhall performance company, upgrading the brakes, the power, and making a few cosmetic changes. On the surface, you’re now driving a more desirable and powerful car than the one that rolled out of the showroom.

The problem is, the finance company might not see it that way. Not only is the car more difficult for them to value – you’ve reduced the potential audience for people who would buy it after you’ve owned it, and you might be stressing parts of the vehicle that aren’t designed for the increased power and performance. Sure, you could argue that everything’s done to the highest standard – but the finance company are not performance specialists – they’re likely to be underwriters in suits, so you’d be arguing with people who are really just concerned with the values involved.

With this in mind, you can probably see how modifications become a simple ‘yes’ or ‘no’ issue. No modifications mean the car is likely to be worth exactly what they’ve got on their records – whereas modifications mean it’s not that simple. 

What do finance companies consider to be modifications?

Whether the modifications you’re planning involve serious changes to the vehicle – or they’re just simple and common adjustments, it’s vital you check with your finance company to understand what their view is.

Examples of modifications can include:

• Performance upgrades: Including even slight adjustments to engines, exhausts, brakes, gearbox, suspension, etc.
• Cosmetic changes: Colour changes, new wheels, the addition of body kits, spoilers, and diffusers, wraps, window tints, light upgrades, etc.
• Towing equipment: The addition of a tow-bar and/or battery upgrades.
• Entertainment/infotainment: Upgraded stereos, screens, or software.

Please note, this list is just an example – and while it covers the most common modifications people make to cars, you should check with your finance company to be absolutely certain you’re not breaking their rules.

Checking your finance agreement

Whether you’re in the process of buying a car on finance, or you already own a vehicle that you bought with finance and you’re thinking about some modifications, the best place to start your checking is with your finance/credit agreement.
You should always have a copy of your agreement – but if you’ve misplaced it, you can request another from the company you’ve got your loan with.

The reason it’s so important to check your finance agreement is because this is what your relationship with the finance company is based on. If this document says you simply cannot make any adjustments to the car, then this is what a court or ombudsman would look at if there was a dispute. 

Talking to your finance company

If you check your finance agreement and find that the wording isn’t completely clear – give the finance company a call. Explain to them what kind of modifications you’ve got in mind and see what they say.

It’s actually worthwhile taking this step before you buy a car too. Although a salesperson you’re working with at a dealership might have a good working knowledge of finance agreements, they’re unlikely to know the ins and outs of how each provider works. Since your agreement will be with the finance company and not the dealership, you might want to cut out this ‘middleman’ and get your knowledge directly from the company who makes the rules. 

What happens if you modify a financed car and break the terms of your finance agreement?

If you’ve modified a financed car without the permission of the finance company, you’re likely to find yourself in a tricky position. 

It’s not at all uncommon for a company to decide that they no longer want to provide finance for the vehicle – and if this is the case, they’re likely to give you 14 days to pay the finance off in full. 

Don’t misunderstand though; the finance company won’t want to miss out on the money they would have made simply because you’ve modified your car. Depending on the type of finance you have they may give you a settlement figure that reflects the fact you’re paying the car off early – or they may simply expect you to pay off the full amount that would be repayable across the full term of the loan.

So, what does this mean if you’ve bought a car on PCP?

Well, again, the full amount of the car will become repayable. Understand though – that doesn’t just mean the total of all your monthly repayments – but also the optional final payment you would need to make if you wanted the car to be yours at the end of the term. 

Not in a position to pay off thousands (or maybe tens of thousands) of pounds? It’s no real problem for the finance company – remember, the car is their security, so they may then decide to simply take possession of the car. If this is the case, they’ll send a specialist company to recover the car – either from your home, your workplace, or somewhere else they know they can access it. You might find that additional charges are placed upon your account if repossession is needed – as recovery companies don’t work for free.

What happens if the finance company take your modified car back?

If taking possession of your modified car is the route that the finance company decide to go down, then your car will be recovered, before being sold – usually at auction.

Generally, modified cars will be worth less than what’s owed to the finance company. If this is the case, you will be liable for the remainder of the money that the company need to settle the loan. For instance, if your settlement figure is £20,000 and the car sells for £16,000 – you’ll need to make an arrangement with the finance company to pay off the remaining £4,000. 

If you’re lucky and the car either matches or exceeds the amount that’s owed to the finance company, then your debt is settled. Sadly, since the car belongs to the finance company, anything that is recouped above and beyond your settlement figure is likely to stay with them too.

Is modifying a financed car okay if you can return it in its original state? 

Virtually all modifications you can make to a vehicle are reversible – even engine and performance changes. The question is – will returning your financed car to its original state make it okay to modify it – even if you have a finance agreement?

Again, the answer lies with the finance company. In truth, the company are likely to consider temporary modifications exactly the same as permanent changes – since they affect the value of the car. What’s more, an accident could mean that the car must be valued at any time – so if you have an accident and your car is modified, it could change the amount that’s paid out.

Worse still, if you haven’t declared modifications to your insurance company, you could find you’re uninsured and left owing the finance company the full value of the car.

Always tell your finance company

The message about modifying a financed car is simple; ask your finance company. If they allow it, then you’re in the clear. If they don’t – then don’t. The implications of modifying a car without your finance company’s permission (or against their will) could have significant financial repercussions that take years to recover from.