Can you imagine running a company without having a car and instead relying solely on public transport? For many small business owners, the thought alone is enough to cause stress.
Public transport often doesn’t align with the demands of entrepreneurs. Buses and trains can be delayed or cancelled; may not cover the areas you need to reach, and are time-consuming. Getting around town, meeting clients, or responding to emergencies becomes harder when you’re bound by fixed routes and timetables. Moreover, if your business requires you to transport tools, products, or paperwork, public transport can be highly impractical.
With so many challenges, it's no surprise that many businesspeople rush to their nearest vehicle dealerships as soon as their companies start to thrive. Owning a vehicle offers greater freedom and increased productivity. However, the road between limited flexibility and complete autonomy comes with a potential pitfall: mis-sold car finance. Understanding what this is and how to avoid falling victim to it is crucial for safeguarding your financial future.
What is mis-sold car finance?
Mis-sold car finance occurs when you're given a deal that isn't right for your needs or when critical details are not properly explained.
Mis-sold PCP car finance agreements became so common in the UK that, in 2017, the Financial Conduct Authority (FCA) started investigating them.
The probe was launched after reports indicated that many dealerships were engaging in irresponsible lending practices, including mis-selling, failing to explain key terms, and not conducting thorough affordability checks. The FCA's review aimed to assess whether car finance providers were adhering to regulatory standards and ensuring customers were treated fairly.
What is PCP and why is it popular with entrepreneurs?
Personal Contract Purchase (PCP) is a type of car finance agreement where the customer pays an initial deposit followed by monthly instalments over a fixed period, typically between two to four years.
At the end of the agreement, the individual has three options: pay a lump sum, known as a balloon payment, to purchase the car outright; return the vehicle with no further obligations (subject to mileage and condition); or trade the vehicle in for a new model under a new finance agreement. PCP is distinct from traditional hire purchase agreements because the monthly payments are lower, as they cover only the depreciation of the vehicle rather than its full cost.
Many business owners, particularly those running sole proprietorships or small companies, use their personal finance agreements to secure vehicles that are essential for their daily operations. The appeal of PCP lies in the manageable monthly payments, which allow entrepreneurs to preserve cash flow while still having access to reliable vehicles for business purposes.
Furthermore, these small business owners, often uncertain about future financial commitments, appreciate the option to either purchase the car outright or return it without additional costs. This flexibility allows them to adjust their vehicle needs as the business grows or changes. Moreover, because the initial outlay is relatively low, PCP deals are attractive to those who want use of a high-quality vehicle for business purposes without committing large sums of money upfront.
How to recognise if you’ve been mis-sold a PCP deal
First, if the terms of the agreement were not clearly explained to you, this is a major red flag. Many people who have been mis-sold a PCP deal report that they were not made fully aware of the balloon payment at the end of the agreement or how this would affect their ownership of the car. Additionally, some individuals were not informed of the mileage restrictions or potential penalties for exceeding those limits, which can lead to sizeable, unexpected costs.
Another indicator of mis-selling is if the dealership or finance provider failed to conduct a proper affordability check before offering you the deal. If you were not asked detailed questions about your income, expenses, and financial commitments, there’s a possibility that the affordability of the deal was not adequately assessed.
You may also have been a victim of hidden commissions. In many cases, dealerships receive a commission from the finance provider for selling you a PCP agreement, pushing you toward higher interest rates or less favourable terms.
What to do next: filing PCP claims
If, after reviewing the terms of the agreement, you believe you were mis-sold a PCP contract, act as soon as possible.
The first step is to gather all relevant documentation. This includes your contract, any emails or written communication with the dealership or finance provider, and records of your payments.
Next, you should contact the finance provider directly. Outline exactly why you believe the PCP agreement was mis-sold to you, citing any specific issues such as undisclosed balloon payments, affordability problems, or commissions that were not mentioned.
If you are dissatisfied with their response or if they fail to address the complaint, the next step is to escalate the matter to the Financial Ombudsman Service (FOS), an independent body that helps consumers resolve disputes with financial firms.
It is worth seeking legal advice from a solicitor specialising in mis-sold car finance claims. They can help review your contract, assess the strength of your claim, and guide you through the process. These companies can also represent you in negotiations with the finance provider.
If your claim is successful, you may be entitled to compensation, which could include a refund of any overpayments, a reduction in the outstanding balance, or, in some cases, the cancellation of the PCP agreement.
For small business owners, who often rely on personal finance to secure essential vehicles, being informed and proactive is key. In a market that can sometimes feel overwhelming, taking control of your choices and standing up against unfair practices is a moral obligation.
Copyright 2024.Sponsored post by Jan Penalva.