Drivers who have bought cars using a type of car finance deal from a dealer might have fallen victim to a mis-selling scandal.
According to the National Association of Commercial Finance Brokers (NACFB), many buyers could have been misled by their car dealers.
Car dealerships have a responsibility to fully inform buyers and provide comprehensive advice. If they failed to give you all the information about your agreement, here’s what you need to know.
What is car finance mis-selling?
A lender or car dealer has an obligation to provide you with all the information about the car finance deal. They must provide comprehensive advice about your finance options and explain exactly what the deals can and can’t do.
If they hid information about your agreement or didn’t explain all the commissions or interests being charged, you may have been mis-sold car finance.
When an agreement has been mis-sold, you’re unable to make an informed decision. This could result in you agreeing to a deal you can't afford or buying a car that isn’t right for your needs.
If you’re a victim of mis-sold car finance, you may be eligible for compensation.
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How do I know if I’ve been mis-sold car finance?
Customers who bought a car with deals are the most likely to have been affected by mis-sold car finance.
PCP deals can appear complicated and include a lot of essential small print in their contracts.
When choosing a PCP car finance deal, you need to pay an initial deposit, then a series of monthly payments. At the end of the deal, you can either make a 'balloon' payment to own the car outright or you can return the vehicle.
As an example, if the car is worth £15,000, the dealer may expect it to depreciate to around £8,000 by the deal’s end. This means you pay the difference for this during the length of the contract through monthly payments.
If you then choose to end the contract, you can make a ‘balloon’ payment which equals the depreciated value. In the previous example made, the ‘balloon’ payment would cost £8,000 - this is on top of the monthly payments. Or you could return the car.
Some dealers may try to hide the ‘balloon’ payment or the interest rates included, misleading customers.
If your dealer didn’t clearly explain how this or how the ‘balloon’ payment works, you could be the victim of mis-sold car finance.
Though there’s nothing wrong with choosing a PCP deal, you must ensure the dealer clearly explains the process before buying. Some may persuade you they’re more cost-effective than hire purchase (HP) deals without explaining the actual costs or interest rates involved.
To avoid choosing a deal that isn’t for you, make sure you read the contract carefully.
Was my car finance deal mis-sold?
Your car finance deal may have been mis-sold if:
- The car dealer didn’t fully explain that they'd get a commission on the sale of the vehicle
- The commission and interest rates weren’t clearly explained
- The car finance agreement contract or the terms and conditions weren’t clearly explained
- The PCP payments were unrealistic
- No finance credit checks were made
- You felt pressured into the deal and weren’t given alternative options
What can I do if I’ve been mis-sold car finance?
Gather proof and information
The first step is to gather as much information as possible for written proof of the mis-sold car finance deal.
This includes the contract that was given to you, emails from the dealer and perhaps proof of your monthly payments.
Make a complaint with the finance company
Before making a claim, you should contact your finance provider and find out what their official complaints procedure is.
You can explain your situation to them and give them the chance to put any issues right. They may resolve it themselves, saving you from taking the complaint further.
If they don’t respond or you’re unhappy with their response, there are other options available.
Contact the Financial Ombudsman Service (FOS)
If the last step was unsuccessful, you can appeal to the Financial Ombudsman Service (FOS).
The FOS is an authority that regulates financial services and markets in the UK. They’re an independent party who may investigate your case and deal with any proven misconduct.
The FOS only considers a case after it’s gone through the lender’s complaints procedure, so make sure you take this initial step first.
When contacting the FOS, you need to provide details of your case. This could include a copy of the car finance agreement and any evidence of you contacting the finance company’s complaints team.
It can take up to 3 months for the FOS to assess your case.
Go to small claims court
The decision made by the FOS is often the final decision. But some lenders or customers may try to take the case to small claims court if they’re still unhappy.
This can be an expensive option, especially if you don’t win the case. So it’s important you get legal advice before deciding.
But you can only take a case to small claims court if the claim is for up to £10,000.
What are the most common types of mis-sold car finance?
Some of the most common reasons for mis-sold car finance claims include:
Undisclosed or hidden commissions
Many customers have claimed to be unaware of commission payments.
By introducing you to a finance company of their choosing, the dealer usually gets a commission or fee. If you’re unaware of this, it’s known as a hidden, secret or undisclosed commission.
Lack of affordability checks
Some customers have entered into car finance agreements without knowing if they suits them financially.
This means they’re eventually unable to make the remaining payments.
Dealers should carry out affordability checks to ensure the customer can afford the car before signing the contract.
Not explaining all of the financing options available
You may have been mis-sold car finance if your dealer didn’t explain the other options available when buying the car.
Your dealer should explain the price difference between a PCP and an HP agreement to ensure you're fully informed.
They should also give you other options and explain any extras before they're added to your contract. For example, car insurance, breakdown cover and service contracts.
Not explaining who owns the car at the end of the agreement
The salesperson should clearly explain what happens at the end of the agreement.
This includes whether you need to pay the ‘balloon’ payment and whether or not you own the car afterwards.
High-pressure sales tactics can be used to force customers into buying.
If you think you were put under pressure despite the agreement not feeling right for you, you could claim compensation.
You should be given time to assess the situation and compare the deal to other options.
Increasing interest rates
Some customers may have been overcharged to ensure the dealer was able to get a higher commission.
Whether it’s through inflated interest rates or larger monthly payments, it’s vital you check you weren’t overcharged by your dealer.
How much could I claim if I’ve been mis-sold PCP or car finance?
The amount you could claim if you’ve been mis-sold PCP or car finance depends on several factors. These include:
- The size of the loan
- What the complaint specifically involves
- The length of the agreement
- The difference between the rate you were quoted and the rate you should have had
- Whether there were optional extras added to the agreement - for example, breakdown cover and servicing