THOUSANDS of British drivers could have been mis-sold loans to purchase their cars, causing them to pay over the odds for their motors.
The UK’s £40billion car finance industry may be heading towards a mis-selling scandal if it’s found the terms have not been properly explained to drivers, according to reports.
A financial downturn could result in thousands of motorists being left unable to pay for their cars, analysts say, which would leave dealers stuck with huge numbers of hard-to-sell second-hand cars.
Nearly 90 per cent of new cars are sold through such deals, called personal contract plans or PCPs.
This means customers pay monthly to effectively lease their cars instead of buying them outright.
If it is found that the loans have been mis-sold, dealers could be liable for millions of pounds in compensation.
IS THERE A CAR LOANS CRISIS?
In terms of lending, motor finance is second only to the mortgage market. In 2014, the FCA estimated total lending hit £32.7 billion and last year that figure hit £41 billion.
Many drivers lease cars as they cannot afford to pay out tens of thousands of pounds to buy a vehicle outright.
A personal contract plan allows a buyer to pay for the cost of the vehicle in line with the fall in value over the time of the agreement, usually two to four years.
With such a large number of people borrowing there is some concern that buyers may not be aware of what they’ve signed up for.
Last month, the Financial Conduct Authority (FCA) launched an investigation into the industry because it fears poorer customers may be paying too much for credit.
It plans to assess who uses the products and how they are sold. It will also check whether sales staff are carrying out sufficient checks on customers, to make sure they can afford monthly repayments.
The regulator is expected to reveal its findings early next year.
It could mean tougher rules and fines for lenders who have sold car loans incorrectly.
The probe follows a report by the Bank of England’s financial policy committee last month which highlighted the risks from the rapid growth in consumer credit, including the car financing industry.
Andrew Smith, a director at Compliancy Services, which advises dealers on financial regulations, told the Times: “The culture of the business has to change and from the evidence I have seen there are some things going wrong.
“The majority of customers have no idea who their financing contract is with, even though the rules state the buyer has to know who they are dealing with, along with everyone else involved in the chain.”
IS THERE A CAR LOANS CRISIS?
In terms of lending, motor finance is second only to the mortgage market. In 2014, the FCA estimated total lending hit £32.7 billion and last year that figure hit £41 billion. Many drivers lease cars as they cannot afford to pay out tens of thousands of pounds to buy a vehicle outright. A personal contract plan allows a buyer to pay for the cost of the vehicle in line with the fall in value over the time of the agreement, usually two to four years. With such a large number of people borrowing there is some concern that buyers may not be aware of what they’ve signed up for.
