In March 2019, the FCA has published Our work on motor finance – final findings. The FCA regulates the providers of car finance and their review began nearly two years before and has been long-awaited.
News reporting has seized on the FCA’s findings that commission structures give dealers an incentive to charge higher interest rates.
But here I am interested in the FCA’s findings on affordability where the report concluded:
Contents
What is meant by “affordable”?
You might think that making all your car finance payments on time shows it is “affordable”.
But the FCA and the Financial Ombudsman (FOS) have a different definition.
They say a loan is only affordable if you can make the repayments on time, without hardship and still meeting your other commitments.
That means you need to be able to pay all your other debts, your normal household bills and expenses as well as the new car loan payments.
So if you have made your car finance a top priority as you don’t want the car to be repossessed, you may have increasing credit card balances, you may have taken out loans and you may have got behind with bills. That means even though your car loan is up to date, it is not “affordable”.
Affordability checks before you take the loan
A lender has to check that you can afford the car finance. This may mean checking not just your credit record, but also your income and expenses as well.
These checks have to be “proportionate”. If you have got a great credit record and a good income and are only borrowing a small amount, the lender isn’t going to have to look in great detail to be confident you can afford it.
But with a poor credit record, or where the repayments will be a large proportion of your income, better checks are needed. The FCA rules don’t say exactly what has to be done, but a lender often can’t rely on what the customer says their income and expenses are. Other ways to check include:
- your credit record shows what you are paying to other debts each month;
- there are national average figures for some expenses, so your estimate that you spend £60 a month on food or nothing on clothes isn’t realistic;
- the lender could look at payslips or bank statements to be sure.
These checks are often inadequate
This BBC story ‘Car payments are ruining our lives’ has an example of where a 23 year old student with a part-time job was sold a 21k Audi on finance, with apparently no affordability checks at all.
But it’s probably more common that a quick and inadequate check was done.
A car finance expert makes a lot of excellent points in this article: The car industry need to be more honest when selling car finance says:
It’s time for the car industry to do better, even if it’s to save customers from themselves.
So what are your practical options if you current car finance is hard or impossible to pay?
Should you make an affordabilty complaint?
The car finance company may have done a good assessment of affordability. At the start, you were able to manage the loan repayments. Then something went – perhaps you had your hours cut, or you split up with your partner. Here it’s not the lender’s fault that the car finance is now unaffordable.
But you may think that the lender should have seen that the loan was too expensive if they had looked properly at your situation.
In this case, you can make an affordability complaint to the lender. You should ask for:
- a refund of the interest on the finance. If you are still repaying the loan, what happens is that the interest is removed from the balance, so you only repay what you borrowed;
- for the remaining balance to be repaid at an affordable rate; and
- for any negative marks to be removed from your credit record.
The affordability rules for car finance are the same as for other loans. So you can follow the approach and use the template letter for an affordability complaint in this article: How to ask for a refund from large, bad credit loans.
Few affordability complaints have been made about car finance, so there is no indication of what the success rate is likely to be for these complaints. You should expect the lender to reject it and have to send it to the Financial Ombudsman – the process is all described in the above link.
These complaints may take many months. You will have to keep up the loan repayments during this time, or your car may be repossessed. I suggest you take some debt advice – talk to National Debtline who can help you look at your options for getting through this period.
Two alternatives to making an affordability complaint
1. Terminate your contract and hand back the car
HP and PCP contracts give you the right to terminate them, hand back the car and not owe any more money if you have paid over half the total contract value. This is often called VTing a car – that stands for Voluntary Termination.
Read How to VT your car which explains how terminating an HP or PCP car finance contract works and what you need to do.
When terminating your contract will give you a good result, it may be quicker, more certain and save you more money than making an affordability complaint.
If you don’t need to keep the car, you should definitely consider terminating the contract;
If you need a car but after taking debt advice, you can’t see how you can manage the repayments you may have no better alternative than termination.
2. Apply to the court for a Time Order
National Debtline has a good factsheet on Time Orders. It says:
You may be able to use a time order to reschedule the payments on your agreement. A time order and an order to change the interest rate may be a good option if you have fallen behind with your payments. You may be able to stop the creditor repossessing your goods.
The factsheet mentions the Unfair Relationship test. If the lender did not make adequate affordability checks, that can be seen as resulting in an Unfair Relationship so you could include points about this in your application.
You can apply for a time order if you have been sent an arrears notice, a default notice or the lender has already started repossession proceedings. You can’t apply if you currently up to date with payments.
I am not suggesting that a Time Order is an easy option. You have to start a court case and you may well have to argue it before a district judge who has never seen an application for a Time Order before as they are unusual. If you lose, extra costs may be added to your debt.
One of the reasons the Financial Ombudsman was set up was to provide a more informal way of resolving complaints than going to court.
National Debtline suggests that you may want to take advice from a local advice agency if you want to go for a Time Order, for example a Law Centre or a Citizens Advice. The Legal Beagle forum also provides moral support for people with court cases.
Choosing between these options
It can be complicated to decide between making an affordability complaint, VTing the car and applying for a Time Order.
Sometimes one or more of the options can simply be ruled out:
- you can’t VT the car if you have been served with a Default Notice which has expired;
- you can’t apply for a Time Order if you are up to date with payments;
- if the finance was originally affordable but your circumstances have changed, an affordability complaint will not succeed;
- when you want to keep the car, VTing it is not a good option unless you have no other alternative.
The rest of your finances matter as well. Car finance payments are a priority debt, so setting up a debt management plan for your other debts may help.
Talk to National Debtline about your car finance and the rest of your situation. They will help you decide what to do.
Get interest refunded from large loans
Which debts are top priority?
How to end your car finance early
Kirsty says
Hello, I made a complaint to Moneybarn for unaffordable borrowing and they acknowledged my complaint on 25th March. They have sent another email today to say they have not completed their investigation and have extended the deadline for reply to 56 days. So this will take me towards the end of May. Is this their normal tactic, and then reject?
Sara (Debt Camel) says
They usually take 8 weeks to reply. Probably no-one has actually looked at your complaint.
David says
It doesn’t matter, once the 8 week period has lapsed you can escalate to the FOS anyway.
I’ve done the same and got the same response nearly one month in.
Kirsty says
Thanks Both :) I’ll escalate once the 8 weeks has lapsed.
David says
It’s obviously more beneficial if they send you a final response (which you reject) in that 8 week window because then FOS can investigate as soon as they can pick it up based on the final response.
If the 8 weeks passes and you have no response, you can still escalate to the FOS but this would likely mean further delay while FOS seek input from Moneybarn.
What I’m trying to say is the 8 weeks gives us protection in a way, but can work both ways ultimately.
Good luck!
David says
Absolutely Kirsty and now you don’t need to wait for the 8 week window to pass. Send it over straight away with bank statements, payslips, a full income and expenditure form and your credit report, ideally from the time of application or as close to as possible. Just because they say it was affordable doesnt mean it was. FOS will look at it impartially and won’t take your nor their side, they’ll just deal with the facts and determine affordability themselves. Their decision will be final however.
Good luck.
Jack says
It’s not about what you can show, it’s about what they can see. If your credit report showed no sign of financial struggle I.e large credit maxed out, any loans or late payments then they would have no reason after verifying your income to prompt them to look at bank statements. Do you have a copy of your credit report that accurately shows what it would have been at the time of application? What does it look like?
Sara (Debt Camel) says
if MoneyBarn has bank statements showing the fiance was likely to be unaffordable, they should have declined it. Whatever the credit record said.
Kirsty says
Hello, I have had a letter from Moneybarn today, rejecting my claim for unaffordable lending :( They have confirmed they carried out a credit check but the borrowing met their lending criteria and by checking my payslips they were confident I could afford the repayments. Do you think I should refer to the Ombudsman – is this atypical response from Moneybarn? The bank statements I sent them at the time showed my account £4k overdrawn on a monthly salary of £1600 – I could never get out of the red. I had defaults and 2 CCj’s but they said enough time had passed on those.
Feeling deflated now.
Thanks for all the advice on here, it’s an excellent site.
Sara (Debt Camel) says
Moneybarn reject a LOT of good complaints – you know if the car finance repayments were really dificult to manage – if they were, send it straight to the Ombudsman where Moneybarn is losing a lot of cases.
Sara (Debt Camel) says
PS you should also look at making a complaint about your ioverdraft if it was a lot larger than your monthly salary, see https://debtcamel.co.uk/get-refund-overdraft/
Kirsty says
Thank you so much, I’ll do that :)
Mrs c says
Afternoon monybarn have now agreed with the FOS that my claim for unaffordable lending is to be upheld.how long does it take to get the refund out of them
Dale says
They will have 28 days to pay from the date of acceptance.
Was this agreed at adjudicator level? I have heard moneybarn have started to agree to adjudicator decisions between the period of their decision and it being allocated to an ombudsman.
Mrs c says
Yes all agreed with the adjudicator and a email off moneybarn to say payment willenhall be processed upto 28 days i find that just a kick in the teeth
Dale says
Find yourself one of the lucky ones. I’m on day 73 waiting to be allocated an ombudsman because motonovo ignored the adjudicator decision completely and let it run the 3 weeks. So actually it’s been 94 days for me since the adjudicator upheld in my favour.
LENNY says
I took a car on finance in Dec 2017, through desperation to keep my job.
At the time I only could afford 80 pound deposit.
The car was 8100, but with finance, by the time.its paid off it will have cost me close to 14000.
They never asked me for proof of income or any wage slips, during the process. I didn’t mind at the time as i was desperate.
Shortly after I had to take out a.dmp with stepchange, as could not satisfy all my creditors.
Is it worth me persueing anything? The company is moto novo finance.
Also since owning the vehicle I’ve ended up spending nearly 5000 in repairs for faults.
Sara (Debt Camel) says
Yes it is. Also say the vehicle was not o& satisfactory quality and list the repairs – say if they do not refund the interest paid, you will go to the Financial Ombudsman and also ask for a refund of the repair bills you had.
David says
Hi Sara, I have had a final response from moneybarn stating they assessed my mo they disposable income was £202 and the loan repayments were £201.98 a month. Do I have grounds to escalate this to FOS please as they have confirmed they used national averages for my expenditure which h was grossly underestimated but say because I signed the agreement that I confirmed it was affordable based on their figures? Many thanks.
Sara (Debt Camel) says
Send it straight to the Ombudsman! These are large, bad credit loans that are secured – the lender knows its customers may be in difficult situations and that national averages may not be appropriate.
david says
Thank you Sara, I have a submission for FOS prepped.
Jeremy says
Hi Sara, what % of a monthly salary would you expect a car finance repayment to become “large” 10%? 15? 20? At each point would you expect the threshold for further checks to become more in depth?
example A) 5% of monthly income would be finance repayment, credit score shows no outstanding debts or loans. No further checks required?
Example B) 20% of monthly income would be finance repayment, credit report shows active short term loan. Further checks required?
Sara (Debt Camel) says
I have never thought about this in % terms and I am not sure that is sensible. A large percentage may be affordable for someone on a good salary and low outgoings. A low percentage may not be affordable for someone on a low income.
jeremy says
i know every situation is different, but surely there is a tipping point for further checks required or there would just be blanket rules.
in example A and B would you think further checks would be required other than a standard credit check?
Sara (Debt Camel) says
I think the tipping point depends on the individual case and what the credit record looks like.
Jeremy says
Example B?
Sara (Debt Camel) says
If you want to discuss your situation, fine. But I am not responding to theoretical cases.
Sultan says
Hi Sara, I took a car finance in December 2019. When the car loan was given in Dec 2019, I was under DMP with Stepchange from July 2017. I am still under DMP. They never asked me for proof of income or pay slips or bank statements and the car loan was approved. Can I make an affordability complaint as clearly my credit checks would have picked up defaults and DMP on it. Still the car loan was approved. I am currently in arrears with car loan repayments. I am struggling to make contractual payments and I don’t want to loose my car either. Can you please advise.
Sara (Debt Camel) says
How large was the car finance loan – not including the interest, just how much did you borrow in order to buy the car?
And can you add up the total of payments that you have so far made to it?
How large are your monthly payments?
How much are you paying to the DMP at the moment?
Do you have any other debts outside the DMP – other loans, ove4draft, or arrears on important bills?
sultan says
Hi Sara, Car loan not including interest £9,250 not including interest. So far i have repaid £4339.46 and £1010 in arrears. £240.89 Contractual monthly payments plus £50 arrears total £290.89. I pay £76 towards DMP and none of the debts are currently outside of DMP. I have no access to credit cards and loans. I have arrears of £2800 shared ownership rent and £3500 mortgage arrears currently.
Sara (Debt Camel) says
This sounds as though it is probably a good affordability complaint, however if you make a complaint now and it is upheld by the Ombudsman, then the typical award would be that you would have to hand back the car, be refunded a proportion of the monthly payments you have made and have your credit record cleared. So a good result except that you don’t get to keep the car…
You typically only get to keep the car if you have already repaid more than you borrowed. WHich for you is a very long way away. It’s hard to see how you can struggle to get to that point. You can stop making payments to the DMP and tell your creditors you have priority debts (moretgage, rent and car finance) in arrears. But £76 may not be enough.
I thibnk you may have to manage without the car. I suggest you talk to National Debtline on 0808 808 4000 about your options here.
Can you say what has gone worng so you have all these priority debts? Has your income dropped a lot? Are you claiming any benefits?
sultan says
Hi Sara, I have all these priority debts are partly because of being furloughed in 2020 and 2021 and mainly due to Shared Ownership Rent and Service Charges. Service Charges almost tripled due to cladding issues. I couldn’t sell, move or remortgage my flat as my building is under 11 meter and failed ESW1 with B2 rating. Property value is currently 0 because of cladding and building safety issues. It hit hard my finances and no disposable income to clear the priority debts . I receive child benefits for my two children.
Nicola says
Hi Sara,
I’ve had a successful result from Opla. They have upheld my claim based on not meeting the lending criteria. Only took 6 weeks.
Total payments received £ 24,405.64
Car loan amount £ 14,995.00
Interest refund amount = £9410.64
8% interest £119.80 – this figure looks incorrect to me . I have queried and they have come back that the interest is only calculated from the date of over payment ( I did settle early, ) Is this correct?
Thanks for your help.
Sara (Debt Camel) says
When was the settlement date? What were the monthly payments?
Nicola says
Hi Sara,
Loan start date 21st December 2018
Date settled 7th March 2022 ( had a 3 month payment holiday in between due to covid)
Payments £442 a month
Initial term 60 months
Thank you
Sara (Debt Camel) says
sorry i should have asked how large the final settlement was?
Nicola says
No worries
Settlement figures :-
Outstanding on account £11,520.64
Less rebate of interest if paid within 28 days £2154.56
Final settlement £9366.08- this amount was paid on the 7th March 2022
Account closed
Thanks again
Sara (Debt Camel) says
In that case, if you removed the interest from the original loan, you didn’t clear it until just a tiny bit before the settlement – in their words that is when the overpayments began. Which is when the 8% interest should start.
It may be out by £10 or £20 but not much more.
great result – especially to get this settled by the lender so quickly.
Nicola says
Was very happy with the results.
Thanks for your help.
Beth Hughes says
Hiya Sara, i took out a car on finance with MoneyBarn in 2018 (5 year plan). i have 1 year remaining,
The amount of credit was £8042.72 and the interest charges £6673.65 making total repayable 15,496.65. Do i have a case for a refund of interest here? Or will i need to wait until the remainder of the finance is paid?
Appreciate any help , Thank you
Sara (Debt Camel) says
You can make a complaint at the moment. You don’t need to wait until the finance is repaid.
If you win a complaint where there is still a balance owed and you have already repaid more than you borrowed (which would be the case for you) then the typical redress offered is that you take ownership of the car, the balance is wiped, and you are refunded the amount of interest that you have paid.
Beth says
Thank you, I’m just wondering as on this thread it gives options of Time out order, or handing the car back. Neither of which are apprealing to me as i need / want to keep the car. I have 1 year remaining on the HP, but have/ will have paid almost 7k in interest across 5 yrs.
Thank you
Jane Guvenir says
Hi Sara
What is the timescale for making a complaint and irresponsible lending claim to Moneybarn?
I had a car loan in 2013 and paid nearly £8k in interest, at that time I needed to use pay day loans and work additional hours most weekends to make those payments which I did manage but I also had a tax debt at the time which I was also paying off and informed them of that too. Moneybarn have turned down my complaint and I have escalated to FOS but I wondered if I am within the timescale to complain. During the same period I had Provident loans in place which FOS upheld and I was paid out.
I have used your website many times for useful information and guidance so thank you for providing this support for myself and many others who managed to get ourselves into some desperate situations.
Jane
Sara (Debt Camel) says
Moneybarn will turn down anything over 6 years. provident probably did as well!
But FOS will look at many of these cases.
Have you sent Moneybarn a Subject Access Request? Email DPO@Moneybarn.com and say you would like a copy of all your personal information, including the credit checks and affordability assessment MoneyBarn made on your loan.
Jane Guvenir says
Hi Sara
Yes I sent a SARS request and they sent me the agreement papers and direct debit forms but said they didn’t have any credit checks as they weren’t required to keep them this long. I asked them specifically for credit and finance details but nothing like that included. All sent to FOS now.
Dale says
Hi Sara if I won my case and the refund was from a payment made in august 2020, should I get 8% once or twice as it’s not been 2 full years yet since the payment but it is 2022 not 2021.
Sara (Debt Camel) says
you should get the 8% per annum based on the number of years and part years you have had. Not 1 or 2 but about 1.75 years so that would be about 14%
Andrew says
Hi
I put in a affordability complaint to Smf motor finance on the 2nd April. I asked for my SARS and I’ve still not received anything all I’ve had is a email to confirm that they acknowledge my complaint. Should I just wait until the 8 weeks are up and forward onto ombudsman or should I try phoning them (ignoring emails)
Sara (Debt Camel) says
I suggest you ask them why they haven’t sent you the SAR information as they should do that within 30 days.
Lenny says
Moto novo finance after sending your template, have refused my claim, I could only obtain 2 months worth of bank statements prior to arrangement.
On the statements it showed my wage.
After averaging them out, they said that disposable income was 300.
The money that was paid was inclusive of overtime, flat income after tax was 1600, if no overtime available?
Do I still have cause to persue?
Sara (Debt Camel) says
Was your overtime regular?
As I said before, you can get bank statements from closed accounts.
Do you agree that on the bank statements you provided you did have £300 disposable income? Or did that not take into account your other debts or all expenses?
Did you complain about the car quality and the amount you have had to spend on repairs?