The FCA has published its long-awaited review of car finance: Our work on motor finance – final findings. This work began back in April 2017.
News reporting has seized on the FCA’s findings that commission structures give dealers an incentive to charge higher interest rates. For example: Car buyers overcharged £1,000 by dealers for loans, says watchdog.
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, who regulates the firms that provide car finance, has a different definition.
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.
If you have money problems, you may have made your car finance a top priority as you don’t want the car to be repossessed. As a result, your credit card balances may be increasing, you may have taken out loans and you may have got behind with bills.
In this case, 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 too 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.
But if you are one of the people who is already in trouble with car finance repayments, that isn’t going to help you. So here I am looking at your practical options.
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 bu,t 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
varun says
I raised a affordability complaint against them , and this is what they asked me to answer
am contacting you following a complaint you submitted to us recently.
Specifically, you claim at the point you made the application for this finance agreement; we did not carry out appropriate affordability checks, and you have since found the agreement is unaffordable.
Naturally, these allegations are extremely concerning to me.
In regards to this, I can see your agreement is currently active; and you have never missed a monthly payment.
Can you please confirm why you now believe the agreement to be unaffordable?
In addition, within the terms of the finance agreement presented to you at the point of sale; you were asked to provide a declaration to us, confirming that the agreements monthly payments were affordable.
Can you please confirm why you made such a declaration, if you claim the agreement was unaffordable?
Can you also confirm what your desired outcome of this complaint is?
I will be carrying out a comprehensive assessment of your complaint; but I require you to provide me with a clear understanding of your claims, by providing answers to the above questions.
i have answered the other two questions but not sure what to say for that point , at the time when i bought the car , i had couple of pay days loans and credit cards , i think they did not do enough checks , will they not investigate if i don’t answer their query
Sara (Debt Camel) says
I am asking you to describe to me what happened when you bought the car. Did they ask you a lot about your other debts and bills? Were you just given some papers to sign and said it was affordable without really thinking about it? Were you under a lot of stress at the time and possibly not thinking clearly? Did you think you would be able to manage it but you didn’t really understand how difficult it would be month after month?
They should investigate your complaint even if you don’t respond. They can’t rely on you saying the finance was affordable, they should have checked it was.
John says
I have made an unaffordability complaint to a car finance company”hire purchase” they reviewed it and have said they did nothing wrong, I had made a SARs request at the same time and they sent me some of the information, but not all. They sent me a copy of the contract unsigned by them.
I sent them a request for more information, they ignored it and I stopped paying. 5 months passed they have applied for repossession with the courts. I have requested all the info under discovery and they have now sent me everything including the phone calls and a suddenly signed contract.
In one of the phone calls, it shows that when they did the affordability check they didn’t even ask what my outgoings and expense were, or if I had any debts. They only asked what my income was. and with a £1500 monthly income and more or less £1300 outgoings, they offered me £12000 over 5 years. I only took out £4500 over 5 years, this was still unaffordable.
Would that they didn’t check my outgoings, or expenses at all make it an unaffordable loan?
Thanks for any advice
Sara (Debt Camel) says
Would that they didn’t check my outgoings, or expenses at all make it an unaffordable loan?
It’s a big help but to win the complaint it’s also necessary that Ifthe checks had been made, theY would have shown the loan WAS unaffordable.
You need debt advice urgently on the court case, you cannot just stop paying car finance while you have a complaint going through unless you are resigned to losing the car. I suggest you call National Debtline on 0808 808 4000 today.
Luucy says
Hi Sara
Might be clutching at straws here , but wanted your advice please.
I have been paying £155.00 a month since January 2018 through Special Motorist Finance for a car that cost £5250 , I have another 18 monthly payments of £155.00 to pay .
This was given to me over the phone, no bank statements requested , plus I was on a zero hour contract as a carer in the community so my income would change month to month. Would you think it worth it making an affordability complaint now to them ?
Thanks for taking the time to read this.
Sara (Debt Camel) says
Are you saying the loan was unaffordable? Making the payments has caused your difficulties, having to borrow more or get behind with bills?
Sara lou says
Hi has anyone had success with MotoNovo on a affordability claim. I’ve just had an email saying they are looking into my claim.
Sara lou
Bartek says
Have you had any luck ?
Paul says
Hi All
I’m needing some advice regarding car finance. I was sold a car on finance through welcome finance. I was self employed at the time with a poor credit rating but given the car with an inflated APR. As I needed it for work I felt I had to take it.
Down the line a few missed payments and Welcome racked up more interest charges for this coming to my door and taking part cash payments.
I wrote to them explaining my circumstances and needed to reduce my payments. I started reduced payments but couldnt keep on top.
I therefore asked them to take back car. They wouldnt take back car and sold the debt to Atkiv kapital/PRA group.
They claimed I still owed £4000 plus on the car with I disputed. I started paying £100 per month, then stopped and asked them to pick up car.
They also refused and continued to harrass me by phone and letter for 2 years.
I haven’t heard anything from them now for over 3 years, but I’ve still got the car. Its broke on driveway and I would like to get rid but I fear to contact PRA in case it all starts up again.
Any advice for any part of this would be much appreciated, thanks.
Paul
Sara (Debt Camel) says
I suggest you talk to National Debtline on 0808 808 4000 about three things:
1) was the loan “affordable” at the start? if it wasn’t, you may be able to complain to Welcome and get the interest removed from what you owe.
2) did Welcome treat you fairly when you said you wanted to return the car? You would have had the right to Voluntarily Terminate the contract if you had asked before they sent you a default notice. If you did ask before but not using those exact words, you may be able to claim they treated you unfairly by not allowing you to do this.
3) what to do about the non working car and who it belongs to.
Paul says
Thanks for that Sara,
I’ll talk to national debt line.
Regards,
Paul
Thomas bates says
Hello I wonder if anyone can help.
I returned the car due to not being able to keep up with payments but they still have landed me with £3k debt
Am I entitled to make a complaint to get this wiped and how do I do so?
Sara (Debt Camel) says
Did you voluntarily terminate the finance agreement?
Lis says
Hi I opted for a voluntary give back after my husbands job was affected by Covid 19 however because of recent change in the law and the furlough scheme we now think we are able to keep the car but the finance company are ignoring my emails and calls. I got one email saying that because I have entered the voluntary give back I can’t do anything. I asked if I could pay off the finance at one point and they ignored me. Where do I stand now please? Thanks
Sara (Debt Camel) says
So you told the car finance that you wanted to voluntarily terminate the contract? How long ago?
How long was there to go on the contract?
Lis says
Hi Sara 14 months into the finance… Never missed a payment. It is £310 a month over 5 years. They based it on my wages and I did have to provide wage slips and account statements. They’re saying I will have to £5k back to them as well as give them the car back.
Sara (Debt Camel) says
£5k sounds roughly right if this was a HP contract not a PCP contract.
If the car had been repossessed after you defaulted you would have owed about £14k less what they sold the car at auction for.
How soon after saying you wanted to VT the contract did you change your mind? Are you sure you would be able to afford to continue with it now?
Do you have the money to pay off the finance? If you do, why did you decide to terminate the finance and hand it back?
Lis says
We were up the wall tbh my husbands contract finished but then a week later he was told he could be furloughed until March. I sent the vol email on the Friday and asked about paying off outright the following day (my son was going to buy it). But as I say, they are not responding to me at all. Its over a week ago now and had no contact at all.
Sara (Debt Camel) says
what do you think the second hand value of the car is?
Can I ask if you have other problem debts as well – rent/mortgage, utilities, council tax, loans, credit cards, catalogues…
Ovi says
Hello Sarah,
I issued a VT letter to Moneyway. Back in November 2018 and they have ignored this letter. But due to financial circumstances at the time I just couldn’t afford the payments. Saying that they ignored my letter for VT and I ended with a debt from Moneway(Secure Bank Trust) of £1210 for not making my repayments. I tried contacting them numerous times but they just ignored me to the point where we got to February and they accepted my VT letter but was not able to pay the outstanding amount. Now I have a DEFAULT recorded on my profile and i honestly don’t know how to get around this. Any advice will be welcomed.
Thank you
Sara (Debt Camel) says
I suggest you talk to National Debtline on 0808 808 400 about your options.
AE says
Hi Sarah,
In August 2018, my car was repossessed as I had missed my court hearing to contest. The car was auctioned and eventually sold (for £1,300 – Car was worth £4K+ ). The car finance company deducted this from my outstanding debt which now stands at £5,400.
However, since the repossession of the car, they have been reporting my credit file as arrears (6+ months arrears). I have NO repossession or default on my credit file from the car finance company. Filed an affordability complaint to the Financial ombudsman, but they have a backlog of cases and have informed me that I should expect a reply hopefully sometime in January latest.
Is it not standard practice to default on a debt if you miss the payment for more than 3 months? What do you think the implications are? Should I arrange some sort of payment options with them to avoid CCJ and defaults and disregard my affordability application. Their adjudicator has rejected my complaint, hence pursuing with Ombudsman.
Sara (Debt Camel) says
“Their adjudicator has rejected my complaint”
do you mean the lender rejected your complaint? Or an adjudicator at the Ombudsman?
AE says
I beg your pardon. Yes, the lender rejected my unaffordable complaint. I have escalated it with the Obudsman back in April 2020. I have received an auto reply informing me that they are dealing with mammoth workload and will get back to me sometime Jan/February 2021.
Sara (Debt Camel) says
ok then yes the lender should have defaulted your credit record, but I don’t see any mileage in arguing about this at the moment.
It’s pretty hard for me to guess what the redress decision would be if you win the case so I am not going to try.
If they threaten court action, let FOS know and thet may get your case some sort of priority.
steve says
Hi AE
I have been waiting nearly 2 years for a decision regarding The car finance company. The adjudicator upheld my complaint in which they declined and went to ombudsman last April and i am still waiting so i don’t know how long you will wait for a proper decision as TCFC also never respond to FOS either. Good luck with your complaint
Alex says
I am also still waiting for a final decision from the Ombudsman.
Original complaint was submitted in April 2019 to the FOS. Adjudicator partially upheld my complaint in July 2019 but TCFC disagreed with their decision.
It was picked up by an Ombudsman in November 2019 and I am no further forward with a decision.
Really don’t know what is taking so long but if you have been waiting for an ombudsman decision since last April, I have much further to go.
Bill says
I’ve complained to Moneybarn for unnafordable lending. Having initially been rejected took complaint to FOS and before it has been fully investigated moneybarn have agreed to refund all interest charges and additional interest. I’ve paid a total of approx £6300 in interest over 5 year period. What would the 8% interest be. Is it 8% from last payment or from each instalment. Agreement wa paid April 2020.
Matt says
Hi Bill I am in the same position having taken Moneybarn to the Ombudsman in November last year although I haven’t had anything back from them yet. How long was your case with the ombudsman before you heard anything?
Bill says
Hi Matt
It has been with the obundsman for just over 5 months. It hadnt actually been investigated as such because when they were compiling the evidence to submit to the obundsman they accepted they hadn’t done sufficient checks and put the offer of refund to the obundsman. the investigator said if I didn’t accept they would do full investigation but I have accepted and they have told moneybarn to deal with me directly and get back in touch if not sorted in next 4-6 weeks.
Sara (Debt Camel) says
It’s from each payment. About £1500 at a very rough estimate
Gord says
Yes they know that is why it was prioritised but it’s been 8 months now and I was told in March they had received the business file was told 2 months ago that it should be picked up anytime then was told it was assigned an adjudicator then told this week that it’s still in queue so still waiting
Lauren says
Hello,
Moneybarn borrowed me just shy of £27,000. They asked for 2 months bank statement, 2 months payslips and my credit file when assessing my application.
My salary on both payslips is significantly more than my usual monthly salary but to being owed missing payments/starting employment after the payment cut off date. Also the majority of my monthly expenses are not highlighted on my bank statements (as i paid cash to avoid late payment fees) and not all of my creditors report on my credit file.
In order to keep up with the Moneybarn payments, i have to cease payments to the majority of my other creditors and fell into debt as a result. Moneybarn got the car back and now insist i owe them around £17,000.
I raised a unaffordability complaint with them which they rejected so i raised it with the ombudsman, who also rejected my complaint saying the checks Moneybarn did are adequate.
Any help/advice would be much appreciated.
Sara (Debt Camel) says
I think if Moneybarn looked at your payslips and they were misleadingly large, it was always going to be hard to win this.
I suggest you should talk to a debt adviser about your options for this very large Moneybarn debt and your other debts. Phone National Debtline on 0808 808 4000.