Was your car finance unaffordable?
The FCA, who regulates car finance lenders. and the Financial Ombudsman (FOS) 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.
You may have made your car finance a top priority as you don’t want the car to be repossessed. As a result you may have had increasing credit card balances, more loans or got behind with bills. That means even though you kept making the payments, the finance was not “affordable”.
A lender should have checked you could 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
The regulator thinks some car finance lenders are not checking properly for affordability. In 2019, the FCA said:
Here is an extreme case ‘Car payments are ruining our lives’ 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. He says:
It’s time for the car industry to do better, even if it’s to save customers from themselves.
“Affordability” is a test of your situation when you took the finance
The car finance company may have done a good assessment of affordability. At the start, you may have been able to manage the loan repayments.
Then something went wrong – perhaps you had your hours cut, or you split up with your partner. Or rising bills in 2022 mean what was manageable before isn’t any more. Here it’s not the lender’s fault that the car finance is now unaffordable and you won’t win an affordability complaint. Read Can you afford your car finance payments? which looks at your options in this situation.
But should the lender have seen that the loan was too expensive at the start if they had looked properly when you applied for the credit?
In this case, you can make an affordability complaint to the lender.
How to make a car finance affordability complaint
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.
The template letter in that article asks for:
- a refund of the interest on the finance;
- for the remaining balance to be repaid at an affordable rate; and
- for any negative marks to be removed from your credit record.
If you have other serious complaints about the car, such as poor quality, you can add those into the standard affordability complaint letter.
A lot of lenders reject even good complaints. So don’t be depressed if this happens – just send it to the Financial Ombudsman – the process is all described in the above link.
What happens if you win the complaint?
If you win an affordability complaint for a normal loan, you get the interest refunded and if the loan is still running, your balance is reduced. It’s more complicated with car finance complaints.
You may wonder what happens if your car was repossessed and you had paid little or no interest?
If you still have the car finance, will you be able to keep the car?
See Car finance affordability – what you get if you win a complaint which looks at the different situations and what the ombudsman usually decides. It has some links to Ombudsman decisions – including one for a brand-new BMW!
Still have the car? You must keep paying the car finance
These complaints may take many months. You will have to keep up the loan repayments during this time, or your car may be repossessed.
Read Can you manage to pay your car finance? which looks at your options when you don’t think you can keep on paying while the complaint goes through.
“Dieselgate” – a totally different sort of claim
You may have seen ads saying you may be able to get £,000s back as diesel cars were mis-sold because they produced more harmful emissions than advertised. This is a totally different sort of claim.
MSE has written a good article on these claims, with a list of the law firms you can use and what they charge. This is not a complaint you can sensibly try to do yourself. I have no idea how likely a payout is and it may take a long while.