The Financial Conduct Authority (FCA) have found that as many as 500,000 drivers in the UK are over-charged by more than £1000 on car finance deals over £10,000.
The two-year FCA investigation found that many car salespeople were paid commission by banks and their respective finance arms, which were linked to the level of interest charged on car finance deals. Naomi Schraer, Money Saving Expert news reporter explained
The broker can set a higher interest rate for the customer in order to earn more commission, leaving consumers paying an excessive amount. The FCA estimates this could be costing consumers £300 million a year
In the UK it is estimated that 9 out of 10 cars are currently purchased through a car finance deal. The majority of these are through Personal Contract Purchase (PCP) deals, which are similar to traditional hire purchase agreements where the buyer does not own the car but pays a monthly amount and is left to find a large final figure in the thousands to own the car outright or enter into another lengthy PCP ‘deal’ on another car.
BBC business detailed how the PCP model works in the car finance market
Instead of buying a car outright, a PCP allows consumers to rent a car over a three or four-year period. At the end of the period consumers can buy the car for its residual value (known as a “balloon” payment), hand the car back, or roll over the residual value into a new PCP on a new vehicle.
In comparison PCCU car loans are totally transparent, all loan applicants are charged the same rate of interest and there are no application or set-up fees. Unlike many lenders who advertise temptingly low representative interest rates, which are only offered to 51% of applicants – at PCCU what you see is what you get.
Of course, dealers will often offer car finance deals on their vehicles and while we can’t guarantee that our terms will be better 100% of the time, what we can say is that it’s worth taking the time to find out.
That’s the challenge PCCU throw down; if you want to spend more than £3000 on a car, compare the terms offered elsewhere to the terms on a PCCU car loan , and we’re pretty confident that what we provide will prove highly competitive.
The FCA launched the investigation into the car finance market in 2017 when consumer credit figures rapidly increased, largely due to the PCP deals found at car dealerships. According to James Salmon (Daily Mail) and Emily Hardy (This is MONEY) the FCA’s undercover investigation highlighted the problem of car salespeople failing to make customers aware of the commission they made on car finance deals
Undercover shoppers from the watchdog found just one out of 37 franchised car dealers and four in 60 independents disclosed that any commission was paid. This compares with two in 14 car supermarkets and four in 11 online brokers.
The FCA are assessing the options available to protect car finance customers before intervening in the market. They could strengthen existing rules or look at steps such as banning certain types of commission model or limiting broker discretion on interest rates.
In the meantime if you want a car loan, where the loan term is clearly set out and you know you will be charged the interest rate that is advertised, with no extra commission paid to salespeople – then apply online or contact a member of staff today.
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