Mis sold Car Finance
Research from the Institute of the Motor Industry (IMI), the professional body for the automotive sector, has found that finance and insurance (F&I) products are added to 60% of all car purchases. However 45% of drivers said they felt pressured by a salesman to buy add-ons when they most recently bought a car from a dealership or garage.
Mis-selling a car finance deal means that you have either received poor advice, you weren’t given all the information about a deal or the risks weren’t made clear to you. It usually leads to you ending up with a deal and a car that doesn’t suit your needs or financial means.
What is financial mis-selling?
The lender has an obligation to inform you what is involved in their car finance deal and what it can and can’t do, so that you are paying for a deal that suits you and what you were looking for. If they haven’t done this then you may be eligible for compensation.
Whether you have lost money or not, if the car isn’t right for you as a result of mis-selling then you should make a complaint to stop the lender doing this again in the future.
Maybe the financial company were misleading about the extra costs involved in your contract or how risky the deal would be – you can make a complaint about these kinds of situations. If you were aware of the disadvantages or risks of a deal because your lender told you before the purchase, then you won’t be compensated.
Financial mis-selling is, unfortunately, becoming increasingly common, particularly with Personal Contract Purchase car finance deals.
Has the mis-selling scandal affected me?
Customers who have bought a new car with a Personal Contract Purchase (PCP) deal may be at most risk of having been mis-sold a loan in this new scandal. These PCP deals can be complicated and involve a lot of small print in the contract.
You may have been taken advantage of by dealers who have told you that you are getting a better deal or that a PCP deal is a much more cost-effective option than a Hire Purchase deal.
You may be caught out by a PCP contract due to the balloon payment at the end. A PCP deal works by making the cost of the loan equal to the amount the car is expected to depreciate over the course of the contract.
To make this more clear – if a car is initially valued at £15,000 at the beginning of your contract and the dealer expects it to depreciate in value to around £8,000 at the end of the deal, then you will pay the difference over the length of the contract. If you enter into a 2-year PCP deal, then you will pay £7,000 in monthly instalments over that time.
If you then wish to keep the car at the end of your contract, you make a balloon payment. This covers the rest of the cost of the current worth of the car. So, if your car is now worth the expected £8,000, you will pay the extra £1,000 to gain ownership of the car.
So, how may I have been mis-sold the PCP deal?
You can end up paying a huge amount more in interest than you would on a Hire Purchase contract. Many dealers do not make it clear that the balloon payment at the end effectively makes it an interest-only loan that isn’t paid throughout your agreement. Therefore, the interest builds up much more quickly. The interest bill can be huge if you decide to buy the car outright later on.
There is usually nothing wrong with the PCP deal – it all comes down to how your dealer sells it to you. Dealers have been known to discuss the profit you can make from PCP deals, but profit is very much the wrong term to use. This ‘profit’ is just the money you have already paid to cover how much the dealer expected the car to depreciate – you have actually borrowed more money and paid more interest than necessary.
What to do if you have been mis-sold your car finance
Gather information – Bring together all the information you have. If you have any written proof of how you have been mis-sold a car finance deal, then this will come in useful. If a contract outlines something that has happened differently in reality, then this is what you can use as written proof.
Concrete evidence is not essential – if you explain your problem to your lender then it may be resolved very easily.
Complain to your dealer – explain your situation
Find out what their complaints process is and then explain your situation. They may resolve the situation for you immediately, but if you are not happy with your lender’s response, or they have not responded at all, then there is the next option:
Ask the Financial Ombudsman Service for help as a last resort
You now need to take your complaint to the Financial Ombudsman Service. They are an authority who look after business agreements that have involved misconduct. They are an independent party so will investigate your situation for free. They will only help once you have gone through your lender’s complaint system and received written confirmation that the dealer is not willing to help you with your problem.
The Financial Ombudsman Service will then work out how to resolve your issue. It is likely that you will be given some compensation and that the car finance deal will be ended so that you can return the car and buy a new car from a different company.
You need to look around for which company can offer you the most competitive deal. Move on with a trusted company by comparing car finance deals and find your dream car without any hassle.
The decision of the Financial Ombudsman Service is usually the final one but sometimes your lender may try and take you to court. You need to think this through carefully because court costs can be expensive and may take you out of pocket if you don’t win the case unless you use a No Win No Fee arrangement.
The Financial Ombudsman Service may also be able to help if your lender has gone out of business and is not able to pay you anything
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