Car dealers overcharging by £1000 on PCP deals

Car dealerships are currently under scrutiny by the Financial Conduct Authority (FCA) for overcharging on their Personal Contract Purchase deals. For independent car finance providers such as UK Car Finance, we are a car finance broker and lender rather than a car dealership! This means there are no hidden fees or high-interest fees. Instead, interest is fixed for the duration of your car finance loan!

The Financial Conduct Authority (FCA) have announced that some car dealerships are over charging customers on their PCP deals. The FCA have said the industry practice of car dealers setting their own interest rates is costing customers around £300m a year, as the BBC have reported. Dealers overcharging on interest have been able to boost their commissions for their sales team.

Jonathan Davidson of the FCA said: “We found that some motor dealers are overcharging unsuspecting customers over a thousand pounds in interest charges in order to obtain bigger commission pay outs for themselves. We also have concerns that firms may be failing to meet their existing obligations in relation to pre-contract disclosure and explanations, and affordability assessments. This is simply not good enough and we expect firms to review their operations to address our concerns.”

After a 2017 investigation, encourage by the rise in consumer credit, the FCA found that many dealerships across the UK were failing to disclose ‘complete or clear information’ to customers about their finance deals, including Personal Contract Purchase deals.

Personal Contract Purchase (PCP) is a type of car finance deal which is hugely popular in the UK. With over four-fifths of new cars, finance deals in the UK are a PCP deals. PCP makes buying a car more affordable and helps spread the cost into monthly payments. Within a PCP deal, consumers pay for their car in agreed fixed payments each month for an agreed length of time, usually 3 to 4 years. At the end of the agreement, you have three options. You can either buy the car for its residual value, give the car back, or use the residual value on another PCP deal. Check out our top 5 most common myths about PCP car finance agreements. 

Hire purchase car finance is more suitable for drivers who want to buy their car outright. As with PCP, you never own the car unless you choose to pay the final payment or refinance a balloon payment. HP is one of the simplest forms of car finance. It doesn’t necessarily require you to put down a deposit either, as there are many no deposit car finance options available. You make fixed payments each month to a fixed term and interest rate, and then once all your payments are made, you then own the car outright! You can also pay for a car using a personal loan option. Within a personal loan agreement, you borrow a lump sum to buy a car and then pay back the money over a set term plus interest. Since you have bought the car with your lump sum, you will be the legal owner of the car from the off!

At UK Car Finance, we specialise in straight forward car finance and have no hidden fees or dodgy deals. Our personal finance experts are assigned to each customer to help them every step of the way and answer any questions they have regarding their finance deal. We primarily deal in Hire Purchase and personal loan car finance but also offer alternative finance options.

The Finance and Leasing Association (FLA) have not backed this claim by the FCA and have criticised their findings to be ‘outdated’. Since their findings in 2017, the current market has improved massively. The FLA, who represent car finance providers, have said over 80% of their members are not using commission models anymore.

Adrian Dally, head of motor finance at the FLA, said the FCA’s claims are “based largely on out-of-date information, and therefore does not reflect the very considerable progress the market has already made in moving away from such structures.”

Find out more: FCA launches car finance commission investigation.