Personal contact purchase (PCP) could emerge as the next PPI claim scandal, following a stark investigation into car finance products by the Financial Conduct Authority (FCA).
Although PCP is used by 90% of UK motorists, issues have emerged over unaffordable balloon payments and car dealers may have been selling finance at a higher rate than necessary to earn large commissions.
PCP is popular because it gives car buyers the chance to pay lower monthly payments with a large balloon payment at the end of the 3 or 4-year deal if they want to eventually own the car. However, many customers are finding themselves in negative equity and needing to pay an inflated balloon payment ? and are further away from owning the car outright, despite years of payment.
An investigation by the FCA shows that the average motorist may have been charged in the region of £1,000 to £1,100 extra for their car finance ? and many are saying that the potential claims could mirror the PPI scandal that refunded over £50 billion from UK banks.
Later this year, claimants may be able to apply for compensation for PCP in a similar way to PPI. Although this is yet to be confirmed and many claimants are awaiting more information from the FCA.
Reflecting on the PCP scandal, we spoke to someone from Quick Car Finance who specialise in brokering hire purchase and no deposit car finance.
“Until now, customers may have been overcharged by their car dealer who could freely charge more to earn more commission.”
“The next issue is that your balloon payment could be greatly inflated. After all, doing more mileage or having any scratches or dents will make the outright purchase of your car more expensive ? as stated in the terms of your agreement. But does anyone really sit down with the dealer and provide an accurate figure on their mileage ? or is just an estimate? These things make a real difference.”
“At Quick Car Finance, we prefer to offer hire purchase which means that every month you are paying and investing into your car which you will eventually own. With PCP, you are relying on a balloon payment in order to own your vehicle, but this could be greatly overpriced or poor value for money.”
The FCA is still investigation the car finance industry and more information about claiming compensation will be outlined later this year.
