We reported previously that many financial experts are worried that the growth in car loans could trigger a financial crisis, similar to the one caused by sub-prime mortgages back in 2008. Now there are concerns that many car loans are being mis-sold, meaning that consumers are paying more than they should for their vehicle because the finance details were not properly explained to them. With an annual value of £40 billion, and estimates that loans are used in 90% of new car purchases, that could be a huge problem in the future, especially if interest rates rise and make it more difficult for people to keep up that payments on their loan.
The Sun reports –
“A financial downturn could result in thousands of motorists being left unable to pay for their cars, analysts say, which would leave dealers stuck with huge numbers of hard-to-sell second-hand cars… Nearly 90 per cent of new cars are sold through such deals, called personal contract plans or PCPs… This means customers pay monthly to effectively lease their cars instead of buying them outright… If it is found that the loans have been mis-sold, dealers could be liable for millions of pounds in compensation… Last month, the Financial Conduct Authority (FCA) launched an investigation into the industry because it fears poorer customers may be paying too much for credit… It plans to assess who uses the products and how they are sold. It will also check whether sales staff are carrying out sufficient checks on customers, to make sure they can afford monthly repayments.”