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Fears over the UK’s £40 billion car finance market

Robin Bowman

Robin Bowman
May 2, 2017


There are new fears that the UK’s £40 billion car finance market could be heading for a massive miss-selling scandal.

The sale of new cars has been propped up by finance deals – almost 90% of new cars sold are bought through finance deals. 

But there is growing concern that millions of buyers have signed up to deals without fully understanding how they work.

A finance deal in effect means the buyer only owns a car once the final payment is made.

And many, so-called personal contract plans (PCPs) involve very low, or no, deposits, plus a final very large payment, known as a balloon payment.

Many buyers cannot afford this final payment and so simply hand back the car and sign another deal

The Times reports that analysts say a financial downturn could mean thousands of motorists won’t be able to keep up payments, leaving dealers with a huge number of second-hand cars they would struggle to sell.

If you feel you've been mis-sold a PCP, make a complaint on A Spokesman Said. 

The Times claims The Car Finance Company, a provider of finance to people with poor credit histories, appears to be in financial trouble.

Six directors of the "sub-prime" lender have left since the beginning of March and its accounts are listed by Companies House as overdue.

The paper reports that there is no suggestion of any wrongdoing by The Car Finance Company. 

But, industry experts warn that other car dealers could be left liable for millions of pounds in compensation if financial regulators decide their finance products have been mis-sold.

The Financial Conduct Authority (FCA), has launched an investigation into financing in the car trade, and it has signalled that it believes some borrowers, particularly poorer ones, may be overpaying for credit. 

Andrew Smith, a director at Compliancy Services, which advises dealers on the financial regulations, said, ”The culture of the business has to change and from the evidence I have seen there are some things going wrong.

"The majority of customers have no idea who their financing contract is with, even though the rules state the buyer has to know who they are dealing with, along with everyone else involved in the chain.”

The FCA has said it will "intervene" if it finds wrongdoing.

PCPs have only been sold in Britain for the last few years.

The Finance & Leasing Association (FLA) reported that in the 12 months to January 87% of new car sales were funded by its members and about 75% of all loans were arranged as PCPs.

Find out in fill: what is a PCP and is it worth it? 

WHEN DID YOU LAST SWITCH YOUR CAR INSURANCE PROVIDER?

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