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If you bought a car on PCP (Personal Contract Purchase) finance in the last 10 years you may be able to claim back £thousands in compensation as it may have been mis-sold to you.  The reason for the widespread mis-sold PCP vehicle loans is because the motor dealers obtain huge commissions from the loan companies to sell their loans.  It is estimated that 50% of car purchases on PCP have over paid £thousands and you could be one of them who are entitled to a PCP pay out through us under a ‘no win, no fee, no worry basis.’

However many types of car loans have come under scrutiny including hire purchase loans so it is not confirmed to PCP missold loans. The criticism and claims now being made out against the lenders and brokers is not raised by solicitors but by the independent body watchdog, the Financial Conduct Authority, a summary of the findings can be found on there website FCA to Ban Discretionary Commission Models.  In its summary findings it provides:

‘Currently, some car retailers and motor finance brokers receive commission which is linked to the interest rate that customers pay – creating an incentive to sell more expensive credit to some customers. The broker can effectively set the interest rate and the FCA found that the widespread use of this type of commission creates an incentive for brokers to act against customers’ interests. The FCA estimates the changes would save customers £165 million a year. Preventing the use of this type of commission would remove the financial incentive for brokers to increase the interest rate that a customer pays and give lenders more control over the prices customers pay for their motor finance.’

It is a scandal costs motorists an estimated £165 million a year.  The ban on loans where brokers set the interest rates for the consumer (raising a conflict of interest) came into force on 28 January 2021.

One of the main criticisms against the car dealer who sold the vehicle to you under a PCP is that they did not fully explain the fact that a PCP is essentially an interest only agreement.  You never really pay off the cost of the vehicle and at the end of the loan agreement of usually 3 or 4  years you are faced with a big balloon payment to make if you wish to keep the vehicle.  This is where the vehicle has been mis sold, the dealers push PCPs to their customers due to higher commissions from the lenders, as the lenders charge higher interest rates to create incentives to sell more expensive loans.

In many cases all you have done is paid a large deposit for the vehicle and rented it.  It’s a bit like renting a house with no value left at the end of the term.

In more technical terms, the loan company for the PCP, sets the value of your monthly payment by taking into account the value of your car purchase, say £30,000 with a three year payment schedule;  the loan company will then consider the value of the vehicle in three years, say £20,000; your loan repayments will be £10,000 (difference between the cost of vehicle £30,000 and the value at the end of the term £20,000). So you don’t pay back the load at all. If you want to keep the vehicle you have to pay an additional £20,000.  The whole process of valuing a PCP contact, (the depreciation of the vehicle) over the loan term (less your deposit) is called the minimum guaranteed future value (MGFV).

This is unlike Hire Purchase loans, where your monthly repayments contribute towards the purchase of the vehicle and interest, so at the end of the term you actually own the vehicle. You have nothing more to pay.  PCP loans look cheaper than HP loans because you never pay anything towards the capital cost of the vehicle.

According to an article in What Car Magazine on misold PCP loans:

“Some motor dealers are overcharging unsuspecting customers over £1000 in interest charges in order to obtain bigger commission payouts for themselves,” said Jonathan Davidson, director of supervision for retail and authorisations at the FCA. “This is unacceptable.”

Indeed the FCA say that many complaints for missold PCP loans relate to consumers not being informed about:

  • The balloon payment that must be paid if they want to keep the vehicle (MGFV).
  • Cost of repairs, consumers have to pay upon handover of the vehicle.
  • Cost of excess mileage charges above the contractual ‘agreed’ mileage.

In Summary

The reason for the compensation pay-outs for mis-sold vehicle finance on PCP is:

  • If you take out a PCP at the end of the term you are left in debt, you have nothing left.
  • If you take out a HP loan, there is no debt, you own the vehicle.
  • You have paid over the odds on interest charges and commissions.

If the complexity of the PCP loan and any commissions charged have not been clearly explained to you, then you may be entitled to compensation for the losses you have incurred or overpayment due to higher interest rates. The dealer has a duty of care to treat their customers fairly and should spend time and effort to go through all the finance options so that the customer has an informed choice of the options before committing.  Whilst it is  not unlawful to keep a commission on the sale of the vehicle, nevertheless the commission should be explained and if a consumer asks if any is paid it must be declared see the Case of Mrs Plevin v Paragon Personal Finance Ltd where the Supreme Court ordered repayment of a commission payment of a loan that was over 71% of the PPI premium.

Important to Claim for quickly for missold PCP car finance as the paperwork may be lost or destroyed by the dealer and or the loan company if you no longer have the documents. Whilst it is still possible to claim without the paperwork, nevertheless it helps us make the appropriate investigations on your behalf.

Hire Purchase Mis-sold Loans

The review by the FCA did not stop at PCP loans it also covers hire purchase loans where the dealer failed to disclose the commissions they have paid to themselves when selling the vehicle.  If the commission has not been disclosed to you,  you are entitled to bring a claim for the return of the commission plus interest.

Further Reading:

Auto Car Article on PCP Load misselling

FCA to Ban PCP Motor Discretionary Commission Models

Motor Finance PCP and Discretionary Commission Models

Motor Finance PCP and Consumer Credit Commission Disclosure


Frequently Asked Questions

This is dependent upon various factors:

  1. Generally speaking the larger the loan the greater the compensation award.
  2. The length of the loan agreement; the longer the term of the agreement the greater the compensation (as you will be paying more interest).
  3. The interest rate your were charged. There may well have been lower rates they could have used but due to commissions etc they charged you a higher rate.
  4. How much commission they have charged you.
  5. There could be other factors which we will take into account that may increase your compensation such as additional mileage charges and repair charges.

Generally speaking you could claim back £thousands.

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We can help with mis-sold finance agreements in the last 10 years.

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It doesn’t matter. We can still look at your agreement as long as it was in the last 10 years.

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Unfortunately, we would not be able to claim on your behalf in this instance.

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Yes if you were charged an undisclosed commission by the dealer. We can claim back for you the commission plus interest.

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Simply click here to complete our online claim form.

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The loan company/dealer does not pay our costs and if we do not obtain anything for you, you do not pay us anything, i.e. no win, no fee. But if you win we charge 35% plus vat.

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