Lawyers investigate whether finance providers accurately represent PCP interest terms and future, vehicle, values.
How PCP car finance works
UK Personal Contract Purchase (PCP) finance might have been mis-sold to millions of motorists, lawyers suspect. The National Association of Commercial Finance Brokers made this revelation which could trigger a wave of compensation claims. PCP is, after all, an extremely popular means of financing new and used vehicles.
PCP finance operates on a straightforward premise. The motorist pays a deposit at the start of the contract which spans (say) thirty-six months. This payment is followed by a series of fixed, monthly, instalments that incorporate interest (if applicable). Paying a larger, upfront, deposit reduces the monthly instalments.
At the start of the contract, the finance provider also predicts how much the vehicle is likely to be worth at its conclusion. That sum is often referred to as the optional final payment. It is based on a vehicle's projected age, mileage, condition and market trends.
The motorist has three options at the end of the term. The first is to return the vehicle with nothing else to pay - assuming it is within the pre-agreed mileage limitation and in reasonable condition. Allowance is made for sensible wear and tear, of course.
Option two is to make the optional final payment to own it. The vehicle's actual value – even if it differs wildly from the sum predicted at the start of the term – does not influence what is due. Option three is to trade it in, then start a new finance plan.
An unscrupulous, misinformed, or careless finance provider might cause a motorist two issues, lawyers suspect. The provider might hint that the vehicle will, in fact, be worth more than its optional final payment at the end of the contract. This “profit” might then contribute towards the deposit of a replacement vehicle.
Alternatively, the implication is that the motorist could purchase at the optional final payment rate, then sell immediately for a profit. The second concern is that a provider might fail to make clear that the PCP interest rate – assuming this is the case, of course - is higher than if purchasing the vehicle on hire purchase.
Finance industry could be shaken to its core
The National Association of Commercial Finance Brokers is a trade body for business finance brokers. Board Member, Graham Hill, said:
“(If) lawyers conclude there is enough basis to put forward a mis-selling case on PCPs then - given the huge volumes in which these products have been sold to both private individuals and businesses - the car finance industry could be shaken to its roots.”