COMPLAINTS about car finance plans have been on the rise.
Drivers are expected to borrow £38billion this year to buy new or used cars, the Finance and Leasing Association has forecast.
Customer complaints about hire-purchase plans are on the rise
But some are running into problems. There were almost 3,000 complaints about hire-purchase plans between October and December last year, according to the Financial Ombudsman Service (FOS).
That’s more than double the number for the same period two years earlier.
Consumer expert Martyn James says: “The plans let drivers buy a vehicle that may otherwise have been outside their price range. But they come with clauses that can catch drivers out.”
Samantha Partington tells what to watch out for and how to get help if things go wrong. . .
HOW PLANS WORK
MOST drivers who buy a car on finance now use a type of hire purchase agreement called a personal contract purchase (PCP).
With these, you make monthly payments for a set term of three to five years.
Then, if you want to own the car you will need to make a large payment to the finance company, called a balloon payment.
Or you can hand the keys back and take a plan on a new car.
Voluntary termination is an option once you’ve paid back more than 50 per cent of the total cost of the debt (including interest and the balloon payment).
The plans seem flexible, offering the chance to drive a new set of wheels every few years, but some drivers are complaining they didn’t understand the contracts.
WHEN taking out a PCP, you’ve got a 14-day cooling off period under the Consumer Credit Act, but it can be tricky to use.
That’s because the rule applies to the finance element and dealers don’t always offer it on the car itself, explains Stuart Masson, founder of website The Car Expert.
“If you end the agreement, you’re likely to still have to find a way to pay for the car,” he says.
In one case, a buyer who was offered a seven-day cooling off period by a dealership on a used car tried to return it because he wasn’t happy after driving it.
The firm refused because he had driven 200 miles.
When he complained to the FOS, it agreed to let him return the car.
Some drivers who have complained to the FOS were caught out by clauses that have left them hundreds or even thousands of pounds out of pocket when they tried to return their car at the end of their loan term.
When you sign up to a contract, you set a mileage limit based on your expected usage.
Mr Masson says he’s heard of some dealers telling buyers this isn’t important and to set it low to keep their payments down.
But if you breach the limit you’ve set, you can be charged for extra miles.
In one case a buyer was charged £1,300 for going over the limit, but after he complained to the FOS the lender agreed to waive the charge.
In other cases, drivers have complained that they have not been treated fairly when they’ve got into financial difficulty and struggled to afford payments.
Some borrowers found it hard to speak to anyone to arrange a payment holiday, while others say the lender didn’t take into account poor mental health.
This is a particular concern as the cost of finance has jumped, leading to fears more borrowers will miss payments.
A year ago, interest rates for plans on new cars were typically between two and four per cent, according to Mr Masson.
Now they are around ten per cent, and as high as 15 per cent if you’re buying a used car.
Speak to your lender as early as possible if you’re in difficulty. Don’t pause payments without agreement.
You can complain to the finance company should anything go wrong
You don’t need to use the PCP lender offered by the dealership. Instead, shop around on comparison websites.
Weigh up PCP deals against other options, such as a personal loan or credit card.
Use the eligibility checker on moneysavingexpert.com to see what you could qualify for without damaging your credit score.
If you take out a PCP, read the “right to cancel” section carefully and be aware mileage caps and other conditions may be in a separate document.
MAKING A COMPLAINT
You can complain to the finance company should anything go wrong.
If you’re unhappy with its response, after eight weeks you can take your complaint to FOS free of charge.
Your complaint must be made to FOS within six months of the final response letter from the company.
An FLA spokeswoman said: “Lenders work hard to ensure that their customers have a good experience.
“Among the millions of contracts in place at any one time, some problems will inevitably occur, but the vast majority of cases are resolved promptly.”