Car Finance Mis Selling FAQ's
Personal Contract Purchase (PCP) is effectively a personal loan which allows drivers to spread the payments for a vehicle over a long period, typically two or three years.
However, unlike a normal personal loan, you won’t be paying off the full value of the car and you won’t necessarily own it at the end of the dea, unless you choose to pay the final balloon payment.
PCP is one of the more complex financial products available to help you buy a car, but it can be broken down into three main parts: the deposit, the amount you borrow and the balloon payment.
The more details you can recall about your agreement, the more likely it will be that the finance company can locate and verify you against their systems promptly.
This will also help avoid requests for further information which can delay a decision being made.
The Financial Conduct Authority (FCA) regulates the financial services industry in the UK.
The FCA aim to make markets work well for individuals, for business, large and small, and for the economy as a whole.
This includes car finance which covers several types of financial products you can take out when purchasing a car.
Dealers use PCP finance to draw in people who want to change their car every few years. 73% of new cars in 2014 were bought using PCP, making it the most prevalent financial product in the market.
It is mandatory for car finance companies to keep records of all their customer’s transactions and dealings for at least 6 years.
If you paid off your Finance Deal more than 6 years ago, there may not be any available paperwork for you.
However, there have been cases in which claims have been made against cases of mis-selling over 20 years ago, often without paperwork.
The misconception around car finance is that the product being sold is a car.
This is only partly true. In fact, the main product that is being sold is a financial product which is a loan.
The car is a red herring that has deflected the public eye away from this sector of credit broking meaning it has not been under as much scrutiny as, say, mortgages.
The concept of PCP itself is also relatively new.
Dealers offering PCP finance will typically want around 10% of the value of the car as a deposit. Customers pay a deposit on the car they want and then make monthly repayments until the end of the term.
The amount you will have to borrow is based on how much value the finance company predicts the car will lose over the term of the deal (usually 24 or 36 months) minus the deposit you’ve put down.
You will pay this amount off during the deal, plus interest.
So, you are not paying off the full value of the car. Typical annual percentage rates (APRs) start from around 4%.
When the term ends, if you want to keep the car you need to make a lump sum payment (known as a balloon payment) in order to purchase the vehicle outright.
If you are not going to keep the car, you can hand it back without any further payments.
Alternatively, you can use any equity you have in the deal if the car has maintained more of its value than expected to put down as a deposit on a new vehicle, via a new PCP deal.
The average timeframe is between 8-16 weeks from the date of acknowledgement to a decision being made.
Your claim may be investigated by the FOS or may be litigated upon, but the process could take several months.
Compensation will vary depending on your original contract but most claims involving PCP agreements will be worth several thousands of pounds.
Claims will be made against the lender of the finance only.
The broker of the PCP agreement is considered an agent of the lender so the responsibility is on the lender to ensure their brokers behave according to the standards set by the FCA.