Reclaim Mis-Sold Car Finance Loans

If your finance agreement was unjust, you could be eligible for a refund of £1,000s.

Nine out of 10 customers opt for financing when purchasing new cars, and a significant number of used-car buyers follow suit. While some individuals smoothly navigate their contracts, others find themselves in situations where they’ve been sold finance packages beyond their means or at inflated costs. With potential compensation reaching into the thousands of pounds for affected individuals, it’s crucial to examine your car finance history – whether you’ve settled it or not – to determine if you’re eligible to make a car finance reclaim.

In our guide:

  1. What is car finance?
  2. Type of car finance, in detail?
  3. How to find out if you were mis-sold car finance?

(1) What is car finance?

Car finance is a straightforward way to drive a new or used car without paying the entire cost upfront. Essentially, it allows you to enjoy a shiny new vehicle without a hefty initial payment.

Different deals offer varied outcomes at the end of the loan term. Some agreements grant you ownership of the car, while others involve returning the keys after essentially ‘hiring’ the vehicle for a predetermined period.

This industry is substantial, with figures from the Finance & Leasing Association revealing that its members facilitated new consumer car finance agreements totalling £37 billion in the UK in 2021. Last year, over two million agreements were signed, covering both new and used cars.

(2) What are the most common types of car finance:

If you’re perusing this guide, you might already be familiar with your car finance type, but in brief, the main categories are as follows:

  1. Personal contract purchase (PCP): The most common form of car finance, resembling a loan to facilitate your car purchase. Unlike a typical loan, you won’t be settling the entire car value, and ownership isn’t automatic at the deal’s end, unless you opt for a substantially larger final payment, known as a balloon payment. More details can be found in our PCP guide.
  2. Hire purchase: In this scenario, you gradually pay off the car’s value through monthly instalments. The loan is secured against the car, meaning you only gain ownership once the last payment is fulfilled. Further information is available in our hire purchase guide.
  3. Leasing (also known as personal contract hire): In essence, you lease a car for a predetermined period without the opportunity to eventually own it. Refer to our car leasing guide for additional insights.

(3) How to find out if you were mis-sold car finance?

Ensuring your car finance is above board involves checking for potential mis-selling. While many individuals have seamless experiences with their car finance agreements, some encounter issues due to unclear terms or insufficient affordability checks during the sale. If you find yourself affected by these concerns or face problems with the vehicle post-financing, you have grounds to file a complaint.

Here’s a breakdown of the three complaint types:

  1. Lack of clarity on costs, commission, or the contract.
  2. Absence of proper affordability checks.
  3. Issues with a faulty or unsatisfactory vehicle.

Very Important:

Whether your car finance is ongoing or settled, you retain the right to make a reclaim. Ideally, initiating a case within six years of the agreement’s conclusion is recommended. However, even if it exceeds this timeframe, the Financial Ombudsman Service (FOS) is open to considering cases where customers discovered mis-sold car finance within the last three years.

(1) Lack of clarity on costs, commission, or the contract

When delving into any financial commitment, thorough scrutiny of the fine print is crucial before engaging in car finance. Simultaneously, the finance company holds the responsibility of ensuring the agreement’s details are transparent and comprehensible to you.

If you find that your car finance agreement, along with its associated costs and charges, was not adequately elucidated, you have the right to file a complaint. 

Here are some instances that warrant a car finance reclaim:

The revelation that my dealer was earning a substantial commission caught me off guard.

According to the Financial Conduct Authority (FCA), nearly 95% of car finance deals involved some form of commission model. While commission itself isn’t inherently negative, there’s a possibility that certain commission-based agreements were mis-sold.

Surprisingly, in approximately 4 out of 10 of these agreements, the higher the interest rate imposed, the greater the commission the broker received. Although this specific commission model was prohibited in January 2021, individuals who secured car finance before this date might still be impacted.

Detecting commission details might not be evident in your contract, so it’s advisable to seek confirmation from the dealer or finance company regarding the amount, if any, taken. If you believe the sum is unjust or could have influenced your decision, addressing this concern should be part of your complaint.

I found myself in a situation where I was pushed to purchase costly ‘hidden’ extras that were unsuitable for my needs. When a company sells an insurance policy or service contract, transparency is key. If the firm suggests that you must opt for their policy without informing you about alternative options, or if it fails to make clear the availability of similar choices elsewhere, you have grounds to argue that you were mis-sold car finance.

My contract unexpectedly included additional charges for exceeding the agreed-upon mileage. Many Personal Contract Purchase (PCP) policies come with mileage limits, and surpassing these limits incurs extra charges per mile. Although the per-mile fee may seem nominal, the cumulative impact can be substantial. If this aspect was not clearly communicated to you, you have a valid argument that it’s unfair to impose such fees without adequate disclosure and therefore you were mis-sold car finance.

I found myself facing disproportionate charges for damages to the vehicle. If the dealer or finance company imposes excessive fees for minor damages, you have grounds to argue that they are unfairly interpreting the contract. Alternatively, you can obtain quotes for similar repairs and request reimbursement for the variance between the quotes and the charges levied by the dealer or finance company. Again, if you were paying too much there are potential ground to argue that you were mis-sold car finance.

I found myself under the impression that I was gradually paying off the car, eventually owning it at the end of the Personal Contract Purchase (PCP) term. PCP contracts, however, prove to be incredibly intricate. If any facet of the contract wasn’t explicitly clarified, you have a valid argument that it is unjust – especially if you suffered financial losses or were misled regarding vehicle ownership at the conclusion of the term. For instance, you could contend that, had you been aware of the costs, you might have opted for a simple car lease – therefore you may have valid grounds for a car finance reclaim.

(2) Few, if any, affordability checks:

It’s not uncommon for PCP customers to believe they are engaging in a hire purchase arrangement, intending to own the vehicle at the term’s end. However, the reality often involves a balloon payment, an unexpected cost that some find challenging to afford.

It’s an absolute requirement for your car finance provider, the entity selling you the contract, to conduct affordability checks before granting you the loan. If they neglect this crucial step, you have the right to file a complaint for mis-selling and make a car finance reclaim.

Crucially, if you were financially capable of managing the car finance contract when you initially secured it, it wasn’t mis-sold to you – regardless of any subsequent changes in your circumstances that might make the payments challenging.

However, if you experienced any of the following situations, there is a possibility that your contract was mis-sold:

Struggling to meet your monthly payments is a significant red flag. A loan is deemed affordable if you can make repayments promptly, without experiencing hardship, and still fulfill your other commitments. If you find yourself grappling with repayments, and there hasn’t been a significant change in your circumstances since obtaining the loan, it’s possible that you were mis-sold car finance.

Even if you’ve never missed a payment but incurred additional debt to prioritise your car repayments, the loan may not have been genuinely ‘affordable’ for you. Many individuals, valuing their car as a lifeline, prioritise car repayments while grappling with escalating credit card balances, acquiring further loans, or falling behind on household bills. If this resonates with your situation, there’s a chance you were mis-sold car finance.

Discovering that you owe much more at the end of the deal than anticipated or can afford is another cause for concern. 1 in 5 Personal Contract Purchase (PCP) customers indicates inability to afford the final payment (balloon payment). This could be due to the contract being mis-sold initially or the inadequate explanation of the estimated final payment. In either case, you have grounds to make a car finance reclaim.

(3) Faulty or unsatisfactory vehicle

While not a case of mis-selling, if the vehicle you purchased falls short of the advertised standards or is faulty, your standard consumer rights come into play. If the car was bought from an official dealer, it should be covered by the Consumer Rights Act. This Act dictates that a product must be of satisfactory quality, fit for its intended purpose, and as described. If it doesn’t meet these criteria, you may be entitled to a refund or a free repair – refer to “How much can I get?” for detailed information.

In addition to the Consumer Rights Act, if you used a credit card to pay the deposit for the car finance agreement, you might have the benefit of FREE Section 75 protection. This makes your credit card provider jointly liable to assist in resolving the issue. To qualify, the goods or service you purchased – in this case, the car finance agreement – must have been paid for using a credit card and fall within the £100 to £30,000 cost range.

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