Legal analysts have predicted that complaints about car finance deals are set to be the biggest issue brought before the Financial Ombudsman Service (FOS) by 2024. 

This follows figures released by the Ombudsman that showed an increase in complaints about Personal Contract Purchase (PCP) loans used by consumers to finance car purchases. The number of complaints brought before the Ombudsman has grown dramatically from just over 6,000 to 11,400 in the past year alone.

With 90 % of car finance deals reportedly being PCP deals, experts believe that millions of motorists could be affected by missold car finance. Car financing in the UK currently stands at around £50 billion of borrowing and the Financial Ombudsman itself has estimated that PCP claims could surpass £10 billion. Such figures would make PCP misselling a bigger financial reckoning than the PPI misselling scandal.

What is Misselling Car Finance?

Misselling car finance is when someone looking to purchase a car is given poor advice, isn’t informed of all the risks or isn’t given enough information when taking out car finance. The practice has echoes of the PPI misselling scandal where consumers were advised to take payment protection insurance even when they didn’t need it or already had cover in some cases. It is believed that customers who bought their car using a PCP deal may be the most at risk of misselling.

Personal Contract Purchase loans allow a customer to make monthly payments on their car and then either hand it back for another one or buy it outright at the end of the loan period. With PCP deals now the most widely used method of financing car purchases, this means that millions of people could potentially have been missold their car finance. Like most legal documents, PCP’s can be complicated and so there are several ways that the loan can be construed as having been missold.

Examples include sellers convincing customers that a PCP deal is better or more cost effective than say, a higher purchase loan. Other scenarios include unexpectedly high final payments, a lack of affordability checks, or hidden commissions.

Why Is It Such a Widespread Problem?

The misselling of car finance is becoming such a widespread problem due to the fact that PCP type loans have become the overwhelming favoured way to finance car purchases on loan. These types of loans can allow a customer to purchase a car that may have been out of their price range because of the way they are structured. A PCP loan allows you to ‘own’ a car even though technically it remains the property of the seller for the duration of the loan, and after, unless a final payment is made. This is different to hire purchase loans whereby your monthly payments are towards the full cost of the car and you would own the car at the end of the loan period. 

As a result, PCP deals have become the most common type of car loan because they allow motorists to ‘upgrade’ their car every few years. However, these loans are usually extremely complicated and include lots of clauses and catches that can turn out to be quite costly. 

Experts believe that these problems are arising because many people were lured into making purchases they couldn’t afford particularly after the pandemic. Anyone who thinks they could be affected by PCP misselling should contact the Financial Ombudsman Service or seek legal help.