In the last decade, the way vehicles have been purchased has significantly changed in terms of the consumer preferences for vehicle financing options. Personal Contract Purchase (PCP) and Hire Purchase (HP) have emerged as the preferred methods for acquiring vehicles as it has enabled people to access vehicles that they may not have been able to afford to purchase conventionally. With its attractive features, flexibility, and affordability, PCP particularly has revolutionized how people finance their dream cars. But just how big is the PCP market?
PCP agreements have seen a remarkable surge in popularity, accounting for 53% of new cars bought on finance by personal consumers in 2009 increasing to 76% by 2015. Today, incredibly the number stands at around 90%.
PCP agreements typically offer fixed Annual Percentage Rates (APR) ranging between 5% and 10%, making them an attractive financing option compared to Hire Purchase (HP) agreements, which often carry higher rates, usually between 10% and 15%.
The cost of PCP deals has been on the rise due to increasing vehicle prices and interest rates. Monthly finance payments for some new vehicles have escalated by a significant 40% within just three years, posing challenges for budget-conscious consumers.
Vehicle financing has experienced an astounding surge, with car loans rising by an impressive 253% in just over a decade. The total amount borrowed on new and used cars combined reached nearly £39.6 billion in 2023, compared to £11.2 billion in 2009.
Debt on new cars alone amounted to a staggering £17 billion last year, with an additional £22 billion tied up in used vehicles. The average amount financed per new car more than doubled between 2009 and 2022, soaring from under £12,000 to over £25,000. Similarly, the average amount financed per used car significantly rose from slightly under £9,000 to over £15,500 during the same period.
The substantial increase in vehicle finance debt contrasts sharply with wage growth. While wages have risen by 33% since 2009, the debt borrowed on new cars has more than doubled.
Car buyers’ average monthly finance costs fall within the £150 to £400 range. Payments between £150 and £300 are the most common, accounting for 45.7% of respondents, while the £300-£400 bracket constitutes a fifth (20.9%) of the total.
Despite a 7% decrease in new purchases in 2022 compared to the previous year, total car finance borrowing reached nearly £40 billion, a £4 billion increase from 2021. More than 2.2 million customers opted for car finance agreements, marking a 3% increase from the previous year.
As the vehicle finance market continues to thrive, these statistics shed light on its widespread adoption and influence of the automotive industry. Consumers are increasingly drawn to the benefits of lower monthly payments and flexible end-of-term options earning the dealers significant commissions and being an important revenue stream for them.
As you would expect with widespread selling of finance some dealerships and financial institutions have engaged in unethical practices, providing inaccurate or incomplete information to buyers during sales. As a result, many individuals have found themselves locked into unfavorable agreements with high interest rates, unexpected costs, which have resulted in financial strain.
If you believe you have been a victim of the scandal, it’s essential to protect your rights and seek compensation for any potential losses. Start by thoroughly reviewing your agreements to understand the terms, interest rates, and any additional costs that may have been misrepresented. Collect any supporting documentation, correspondence, or communications related to the purchase of your vehicle.
Seek advice from legal professionals at Finance Detective or consumer rights organizations specializing in financial mis-selling cases. They can assess your situation, guide you through the process, and help determine if you have a valid claim. Lodge a formal complaint with the financial institution involved in the mis-selling, keeping a record of all communications and responses. If your initial complaint is not resolved satisfactorily, escalate the matter to relevant regulatory authorities, such as the Financial Conduct Authority (FCA) or the Financial Ombudsman Service (FOS).
In many cases, there are time limits for filing claims related to mis-selling. Delaying the process might lead to missed opportunities for compensation. By promptly addressing the issue, you can avoid further financial strain and mitigate any adverse impacts on your credit rating. A proactive approach not only seeks justice for individuals affected but also helps prevent such misconduct in the future.