Refunds for unaffordable credit are usually simple – you get a refund of interest paid and, if you still have the account, only have to repay what you borrowed with no added interest. And your credit record is cleaned.
That is the basis for car finance affordability complaints too. But here there is an extra factor – what happens to the car?
When you make a car finance payment, some of it is interest and the rest goes towards buying the car. This affects car finance refunds in some situations.
In the last two years, the Financial Ombudsman (FOS) has upheld an increasing number of car finance affordability complaints. So there is now a good track record of what FOS decides in various situations. Some of these may surprise you…
This article looks at the various types of cases so you can tell what may happen in your case.
I’ll use the Ombudsman’s term redress for the compensation you may get – that covers all the elements, not just a cash refund but a balance reduction and repairing your credit record.
Contents
Important car finance articles
Two articles about car finance affordability complaints:
- Were you sold a car on unaffordable finance? looks at what an affordability complaint is. It is a test about your situation when you bought the car. You can win a car finance affordability complaint if you still have the finance, if it has been repaid in full, if you handed back the car, or if the car was repossessed. You can also win if you made every payment on time!
- How to make a car finance affordability complaint has practical details and a template you can use. It is the same template as for other large loans.
And if you still have the finance, these articles look at your options if you can’t afford to keep paying it:
- Can you manage your current car finance payments? you have to carry on making paying while an affordability complaint goes through, and they often aren’t speedy. So you must decide how you can manage the immediate problem of not being able to pay the finance.
- Voluntarily Terminating your car finance This may not be what you want to do but sometimes you don’t have another practical alternative, so find how it works.
What redress do you get in the four main situations
In all cases
In all the following cases, the Ombudsman normally also says:
- if you are getting a cash refund, then you should be paid 8% simple interest on that amount
- any negative marks on your credit record (missed payments, defaults) should be removed.
A) Car finance repaid
This is the simplest case. Often you will have owned the car at the end of the agreement, but it also includes cases where the car was used in part exchange for another one, sold by you to settle the agreement, or settled by you early eg if you took out a cheaper loan or inherited some money or were given a gift.
The redress here is the same as you would get if another type of loan was found to be unaffordable – you get a refund of interest and charges you paid on the finance. And of course you keep the car!
Here is a typical FOS decision:
As I don’t think Moneybarn ought to have approved the lending, I don’t think it’s fair for it to be able to charge any interest or charges under the agreement. Miss C should therefore only have to pay the original cash price of the car, being £4,999 (of which Miss C paid £700 as an initial payment). Anything Miss C has paid in excess of that amount should be refunded as an overpayment.
And another one:
To settle Ms P’s complaint Oplo should do the following: · Refund any payments Ms P has made in excess of £7,127, representing the original cash price of the car.
Here is a FOS decision where Moneybarn tried to argue that as the car was sold to settle the agreement, they should not have to refund the settlement amount. FOS disagreed and stayed with the standard approach of refunding all interest and charges on the finance.
B) You handed back the car or the lender repossessed it
This covers several sorts of cases – Voluntarily Termination (VT), Voluntarily Surrender (car handed back but not VTed) and Repossession by the lender. The distinguishing feature is that the customer lost the car and the car finance lender ended up with it.
Very often the customer has paid less than the amount borrowed, so the usual approach of refunding interest won’t help. In this decision, the Ombudsman explains why the standard approach isn’t suitable for these cases. The very large numbers in that example are because the car was a new BMW, but the same principle applies to all cases where the lender ended up with the car.
We usually say that the borrower needs to pay back the credit amount provided and that the lender should refund any interest, fees and charges that the borrower paid… So, in this case, this would mean Mr F paying back the £168,436.00 he was originally lent.
But I don’t think that a refund of the interest fees and charges is appropriate here. The car was taken back relatively soon after the agreement started and a settlement on this basis would mean Mr F paying for the full amount lent for a car he had for a few months, without owning the car at the end.
Instead FOS’s typical decision is:
- you should pay a fair usage charge for each month you had the car;
- you get a cash refund of your deposit plus the monthly payments you paid plus any payments made after you no longer had the car, minus the fair usage charge;
- any balance still owing is cleared.
Here is one decision where the original car finance payments had been £266 a month:
Miss P also appears to have paid about 14 payments under the agreement and post-termination she has been paying in monthly amounts to reduce the arrears. I also need to take account of the fact that Miss P had fair use of the car for about 19 months… I think the simplest way to put things right here is to ask Specialist Motor Finance Limited to refund everything that Miss P has paid towards the agreement (including what she has paid post termination of the agreement), less a deduction for usage which I think can be fairly set here at £175 per month.
There is no way to predict what FOS will set the fair usage charge at. It is usually significantly less than the monthly car finance payment. In this decision the Ombudsman talks about setting the fair usage charge:
I note that Mr W did have use of the car for around four months, so I think it’s fair he pays for that use. But I’m not persuaded that monthly repayments of over £220 a month are a fair reflection of what fair usage would be. This is because a proportion of those repayments went towards repaying interest. There isn’t an exact formula for working out what a fair usage should be. In deciding what’s fair and reasonable I’ve thought about the amount of interest charged on the agreement, Mr W’s likely overall usage of the car and what his costs to stay mobile would likely have been if he didn’t have the car. In doing so, I think a fair amount Mr W should pay is £110 for each month he had use of the car. This means Moneybarn can only ask Mr W to repay a total of £440… Anything Mr W has paid in excess of this amount should be treated as an overpayment.
But the fair usage charge is related to the cost of the car, so if you have paid a large deposit then the fair usage charge may not be any less than the monthly repayment.
C) Car finance still running & you have paid MORE than the amount borrowed
Here the typical redress decision is:
- you should only have to repay what you borrowed, with no interest or other charges added;
- any amounts paid over this should be refunded;
- the balance still owing is cleared and the car is transferred into your name.
One Ombudsman decision in this situation is:
As I don’t think the finance should’ve been approved, I’ve thought about how to put Mr H back in the position he would’ve been in if this hadn’t happened. So I think that Moneybarn should cancel the agreement. But, because Mr H had already paid Moneybarn more than the original amount of the finance, he should be allowed to keep the car. So, Moneybarn should… refund everything Mr H has paid above the original finance amount of £5,590.
Here is another one:
1st Stop Finance [Oplo] have said that Mr D has already paid more than the cash price of the car and Mr D still has the car and has continued to make the payments under the agreement. If that’s the case, I think it’s fair to allow 1st Stop to retain the payments up to the cash value of £13,899 in respect of the fair use Mr D has had from the car. Mr D should be allowed to keep the vehicle and anything he’s paid beyond the cash value should be returned to him.
D) Car finance still running & you have paid LESS than the amount borrowed
This tends to happen early in a car finance agreement. There haven’t been many FOS decisions in this type of case because often the borrower is unable to keep paying so the car has already been VTed, handed back or repossessed.
The typical redress decision is that:
- the lender should take back the car;
- any remaining balance you owe should be cleared;
- you should have a refund of your deposit plus the payments you have made less what a fair usage charge per month would be.
So FOS is making the same decision it would have made if the borrower had voluntarily terminated the car, see (B) above which looks at what this fair usage charge is. Here is one example:
I instruct Oodle Financial Services to put things right by doing the following: · Cancel the agreement with nothing further to pay · Collect the car at a time and date suitable for Mr T at no cost · Reimburse Mr T all repayments made towards the agreement along with any interest, fees or charges. Oodle can retain from this amount £250 a month prorated from when Mr T took the agreement to 8 December 2019.
NB I haven’t seen a case where the borrower was close to having repaid the price of the car, so I don’t know what FOS would decide in a marginal situation. I would argue for the borrower being allowed to make a few more payments and retain the car.
Only (D) is likely to be a problem for borrowers
Cases A, B and C are straightforward. The redress you get from winning these cases will normally considerably improve your situation.
But if you are currently in case D – you haven’t yet repaid what you borrowed – you may have hoped to be able to keep the car and only pay the remainder of the purchase price at an affordable rate. I haven’t yet seen a FOS decision where that is the result.
If you are in this situation now and you really need to keep the car, decide if it’s possible to delay a complaint. This would involve carrying on making the payments until you fall into the case (C) situation.
Ideally you would delay until you have repaid the amount borrowed and are clearly in case C. But it will take several months for a FOS decision to go through, so you could plan on making an affordabilty complaint several months before that point.
Read Can you manage your current car finance payments? which looks at your options. If none of these will work, you may have no better alternative to VTing the car now and making an affordability complaint at the same time.
Jo says
I am in a position where i have a DMP for more than 30k, and my car agreement (total £18k) is coming to an end with £5k final balloon payment. I don’t think this was fair and have sent:
I am writing to you as I believe you did not fulfil your obligations to check that my borrowing was affordable, and have since put me in considerable financial hardship partially due to the extremely high APR on the car agreement.
If the proper due diligence was taken, it would have been obvious I was not in a position to take this out. This was a large loan, you knew I had poor credit and may have been in a difficult position so you should have tried to verify my income and expenses. If you had done this, you would have rejected my application.
I have since had to take out a DMP, which I am currently having to manage to pay back these spiralling debts and is ongoing. With my car, I still have a lump sum to pay at the end, despite throughout the agreement this being displayed as a ‘Hire Purchase’ not PCP.
My agreement number is xx, with a total cost of £18,039.58. My car registration is xx
I am asking for a refund of the interest and any charges I paid, plus statutory interest that may have occurred during this period to be paid off any existing plans as well as any negative marks on my credit file to do with this to be removed, which has left me in a ruined state financially.
Does this seem okay? – do i have any footing or likelihood of getting anything back?
Sara (Debt Camel) says
PCP is legally a HP agreement. Arguing that this was misleading isn’t likely to succeed.
How long ago did the DMP start?
Nat119 says
Hi Sara,
After a bit of advice please.
Can I put in a complaint with moneybarn for unaffordable lending while in a Suspended Return of Goods Order?
Thanks x
Sara (Debt Camel) says
I suggest you talk to National Debtline on 0808 808 4000 about your options here
Sam says
Hi,
I’m after a bit of advice, I have a case with the ombudsman about affordability with Advantage. Whilst the case is open, I am trying to set up a payment plan with Advantage to start paying off the arrears. They have said I need to do and income and expenditure form. Everytime they send the link to do it, it says that they already have my income and expenditure form and someone will be in touch. I have contacted them and they have said it’s an issue with IT and I should call them to do the I&E over the phone. I have previously said I don’t want to do it over the phone. Should I let the ombudsman know about this?
Sara (Debt Camel) says
well it isnt helpful, is it. But it also isnt really relevant to your affordability complaint.
Natalie says
I’m in the middle of returning a car to moneybarn after over half the contract paid confirmed car was fine no issues just waiting the outcome of the auction to hear if I will owe them. Once this is complete would I be able to put in a complaint for unreasonable lending based on the excessive interest charged? I was paying £500 a month on a 11 year old car half of my monthly charge was interest.
Sara (Debt Camel) says
Please talk to National Debtline on 0808 808 4000 about whether you should have Terminated the contract not handed it back. This is urgent. Do this now, making an affordability complaint can wait a few weeks
Dale says
Hi I won an affordability complaint vs Motonovo, I was paid back statutory interest of 8% on top as normal, but this had tax deducted. Can you claim this back? If so how? Thanks
Sara (Debt Camel) says
yes you may be able to, see https://debtcamel.co.uk/ppi-payday-refund-get-back-tax/
MRS SS says
Hi Sara, I have recently had a response from the FOS regarding a complaint I made against VW for unaffordable lending. I was a student at the time and the FOS have said that they have reviewed all the info that VW would have had access to at the time and because an initial student loan repayment went into my account just before I made the agreement it looked as though I was financially stable enough for them to lend me the car loan. This is what they have based their verdict on. Is there anything more I can do to dispute this, is it worth me asking that the ombudsman investigate (this was from an initial investigator) or is it not worth me pursuing any further? Many thanks.
Sara (Debt Camel) says
an initial student loan repayment Do you mean a payment from the student loan company? Was for living or tuition? was it unusually large? are VW assuming you would get that every month?
did you have any other debts?
MRS SARAH SMITH says
Hi Sara, thanks for you reply. It was an initial payment from the SLC of £3500 that was on my bank statements. This would have been to last me until my next one in January. The FOS have worked out a monthly figure of what my ‘expendable income’ was, including my Husbands payments he would pay in to cover our bills and also my child benefit. I had other debts at the time of around £4500 with paypal, credit card, overdrafts and a store card.
Sara (Debt Camel) says
“The FOS have worked out a monthly figure of what my ‘expendable income’ was, including my Husbands payments he would pay in to cover our bills and also my child benefit”
So they have spread the 3500 to cover up until December?
It is fair enough to take regular payments from your husband and child benefit into account. But your expenses should include the full amount of bills and also expenses for your child. Do you think the numbers are fair?
if not, you need to argue what expenses are missing from the FOS monthly calculation
Mrs P says
Hi Sara, recently made a complaint and lender rejected, opened ombudsman complaint and it was upheld by ombudsman investigator 6 weeks ago and I accepted it (refund of interest and contract unwound, no arrears up to decision date) and lender sent further information and await the ombudsman’s response. I have not paid ever since getting the decision however lender is taking its time to do whatever it needs to do and investigator is still replying to lender. Is this normal process? Was I incorrect to cancel the direct debt. (I genuinely cannot afford it anymore and borrowed from friends and family heavily) I have one month arrears and now going onto the second month of arrears today however lender has frozen the account and nothing sent to credit reference agencies yet and no request for payments either. How do I know if I need a final decision as it looks like Lender isn’t going to accept without putting up a fight?
Sara (Debt Camel) says
Who is the lender?
Do you have other debts as well as this car finance that you are still paying?
Mrs P says
Lendable. 3 credit card debts (min payments) and a mortgage.
Sara (Debt Camel) says
At this stage the ombudsman’s decision is not yet “final”. If the lendable comes back with good arguments, it could change. Not paying the car finance means it is possible your car could be repossessed.
So I strongly suggest you stop paying the credit card debts and instead pay the car finance.
Talk to Stepchange about a debt management plan (DMP) that would let you pay less to those debts and pay the car finance in full. This harms your credit record but you should still be able to get a new fix from your current mortgage lender when the curent fix ends. See https://www.stepchange.org/how-we-help/debt-management-plan.aspx
Mr P says
How do I ask my investigator to go for a final decision? It’s pretty sound reasoning she has in the remedy that lendable didn’t check and assess income properly and I was already in heavy debt yet they still granted me the loan. Have you seen cases where investigator changes her entire decision? Do I ask the investigator to go for a final decision or wait?
Sara (Debt Camel) says
can I check this is car finance? not a loan you took and bought a car with it?
Mrs P says
Yes car finance.
Sara (Debt Camel) says
ok, then you must keep paying and stop paying other debts instead .
From an investigator decision:
If the lender doesn’t accept it and doesn’t give a reason, it will be sent to an ombudsman for a final decision. This often takes 1-4 months but can be longer.
if the lender comes back with some reasons, the investigator will look again. If the investigator changes their mind, it then goes to you for your comments and you can ask for it to go to an Ombudsman
If the investigator doesn’t change their mind, unless the lender gives in and accepts it, it will then go to an ombudsman for a decision.
As you can see, this can take a long while! There is nothing you can do to speed this up.
Mrs P says
Thank you for your help. I’ll try to make last months payment soon to stop the arrears from growing and continue to, I don’t think they can repossess with 1 missed payment overall until then I’ll wait for the final decision/outcome. I’m honestly happy with the agreement ending didn’t expect the refund part. The decision was fairly quick by the investigator so hoping for a positive outcome. Thanks for all the information here it so beneficial – it really helped me to make the initial claim and get a positive result! I’ll keep you posted. Thank you so much Sara.
Mr D says
Hi Sara, I took out car finance in 2022 with Moneyway . This year my account was passed to link financial with a balance of £8000 still owing. Original balance of £11900. I believe I have a case of irresponsible lending due to my financial position at the time of taking the finance and problems caused since. Now the balance is with link financial do you think they would still take the car if I complained now. Or should I wait until I pay most the balance if I can. Thank you Mr D
Sara (Debt Camel) says
were you in arrears when the loan was passed to link?
Mr D says
Yes roughly £2000
Sara (Debt Camel) says
You have now cleared these arrears?
How much did you originally borrow and how much have you paid in total to moneyway and link?
Mr D says
No £8,000 figure left to pay to link financial. No arrears balance included in that figure from link.
£11,900 starting balance.
Sara (Debt Camel) says
To double check, you have cleared the arrears?
How much did you borrow, not including interest?
And how much have you paid? The balance numbers are NOT what I am asking for
Mr D says
No if my car finance agreement was still active with Moneyway my arrears would be around £5,500. No mention or breakdown of arrears with Link just balance left to pay.
I originally borrowed £8,194
I have paid £4,113.96 so far.
Sara (Debt Camel) says
I suggest you phone the National Debtline on 0808 808 4000. I haven’t come across a case like this, ND may well know the answer.
Sam Roberts says
Hi, I have a current finance in place with Autolend (Lendable) but been taken over by Zable.
Car cost selling price £6,348.
Car finance agreement £14,729
I have paid £6,434 so not far from having paid half the agreement. (2 years in to my agreement in Oct).
Not sure if VT or VS would be better, or as I have paid the value of the car an irresponsible lending claim.
There is an excess mileage cap, I’m allowed 10,000 miles a year so should have only done 20,000 but I have doubled that and done over 40,000. It’s 10p per mile cost on anything over so that £2k I’d own if returning the vehicle (still less than what I’d left on finance).
At the time of taking the finance I had 5 credit cards all maxed (£5,200 total), 2 personal loans (totalling £14,000).
I know there are a few variables but any advice on which would suit better?
Sara (Debt Camel) says
is this a PCP deal? You don’t tend to get mileage caps on an HP deal
Sam Roberts says
HP: Excess mileage
This section will apply where you return the Vehicle to us and you have exceeded your agreed Annual
Mileage
If you return the Vehicle to us or we repossess it (except where at the end of the duration of this agreement
you have paid all amounts due under this agreement and have decided not to exercise the option to
purchase the Vehicle – see clause 6) and you have exceeded the maximum permitted mileage, which is
based on 10,000 miles per annum (“Annual Mileage”), an excess mileage charge of £0.10p for each mile will
be payable by you for each additional mile exceeding the maximum permitted mileage. The maximum
permitted mileage will be reduced pro-rata based on the time that has passed since the start of this
agreement until the date the Vehicle is in our possession. Please refer to clause 15 (Excess Mileage) of the
terms and conditions for more information.
Sara (Debt Camel) says
“and have decided not to exercise the option to purchase the Vehicle”
This sounds like a PCP deal, where there is a balloon payment to pay at the end if you want to keep the car. How much is that payment?
This matters to your current situation, as the “halfway” point where you can VT a car is when half the total cost of the agreement is paid, and that includes the balloon payment in a PCP. It is normal in a PCP agreement not to reach the VT point until you are in the last year of the finance.
Look at the T&Cs. There should be a paragraph in there headed termination – your rights. That should give a number for “half the total amount paymable under this agreement” is – what does yours say?
Sam Roberts says
“Hire Purchase Agreement regulated by the
Consumer Credit Act 1974
Parties
This agreement is made between:
Creditor: Lendable Ltd (trading as Autolend) a company incorporated in England and Wales with company
number 08828186”
It says Hire Purchase Agreement at the top, there is no balloon payment, final payment Is £240 which is just slightly less than the monthly payments.
“TERMINATION: YOUR RIGHTS
You have a right to end this agreement. To do so, you should write to the person you make your payments
to. They will then be entitled to the return of the goods and to half the total amount payable under this
agreement, that is £7,364.90. If you have already paid at least this amount plus any overdue instalments
and have taken reasonable care of the goods, you will not have to pay any more.”
Sara (Debt Camel) says
ok so yes, you have to factor in the excess mileage to your calculations.
is paying the monthly amounts a major difficulty at the moment, because an affordability complaints may be 4 months plus…
Sam Roberts says
I am managing at the moment, all priorities bills are paid and I have caught up with arrears now as I have picked up a second job but no wiggle room at all, another unexpected expense is an issue as my consumer debt commitments are tapped. My full time job doesn’t cover all my commitments.
Sara (Debt Camel) says
I think that is very tight, energy bills will rise in the next few months a lot. Food prices may. And petrol/diesel may go up more. Talk to National debtline about your options for the car. BUT ALSO look at a debt management plan with Stepchange