Car finance mis-selling scandal

The lender has an obligation to inform you what is involved in their car finance deal and what it can and can’t do, so that you are paying for a deal that suits you and what you were looking for. If they haven’t done this then you may be eligible for compensation.

Whether you have lost money or not, if the car isn’t right for you as a result of mis-selling then you should make a complaint to stop the lender doing this again in the future.

Maybe the financial company were misleading about the extra costs involved in your contract or how risky the deal would be - you can make a complaint about these kinds of situations. If you were aware of the disadvantages or risks of a deal because your lender told you before the purchase, then you won’t be compensated.

Financial mis-selling is, unfortunately, becoming increasingly common, particularly with Personal Contract Purchase car finance deals.

Customers who have bought a new car with a Personal Contract Purchase (PCP) deal may be at most risk of having been mis-sold a loan in this new scandal. These PCP deals can be complicated and involve a lot of small print in the contract.

You may have been taken advantage of by dealers who have told you that you are getting a better deal or that a PCP deal is a much more cost-effective option than a Hire Purchase deal.

You may be caught out by a PCP contract due to the balloon payment at the end. A PCP deal works by making the cost of the loan equal to the amount the car is expected to depreciate over the course of the contract.

To make this more clear - if a car is initially valued at £15,000 at the beginning of your contract and the dealer expects it to depreciate in value to around £8,000 at the end of the deal, then you will pay the difference over the length of the contract. If you enter into a 2-year PCP deal, then you will pay £7,000 in monthly instalments over that time.

If you then wish to keep the car at the end of your contract, you make a balloon payment. The balloon payment is equal to the depreciated value of the car (also known as the guaranteed minimum future value, or GMFV) - in this case, £8,000. You'll pay this on top of the monthly payments you've already made.

So, how may I have been mis-sold the PCP deal?

There is usually nothing wrong with the PCP deal - it all comes down to how your dealer sells it to you, and how clearly they lay out the terms. Dealers have been known to discuss the profit you can make from PCP deals, but profit is very much the wrong term to use. This ‘profit’ is just the money you have already paid to cover how much the dealer expected the car to depreciate.