Car buyers overcharged £1,000 by dealers for loans, says watchdog

[Bristle Hound]

Some car buyers are being overcharged by more than £1,000 when they take out a loan to buy a car, the UK's financial watchdog has warned.

The Financial Conduct Authority (FCA) said the industry practice of allowing dealers to set their own interest rates was costing consumers £300m a year.

Dealers overcharge to boost their commission, the FCA concluded.

But the Finance and Leasing Association said the watchdog's survey was "based largely on out-of-date information".

Conflicts of interest

The regulator launched its investigation into the car finance market in April 2017 after there was a rapid surge in consumer credit led by car dealership finance.

At the time, it said it was concerned about a lack of transparency and potential conflicts of interest.

In its final findings on motor finance, the FCA concluded that the widespread use of commission models, which allow brokers discretion to set the customer's interest rate and thus earn higher commission, can lead to conflicts of interest that are not controlled adequately by lenders.

It said the practice can lead to customers paying significantly more for their motor finance.

More on this subject here -
https://www.bbc.co.uk/news/business-47438681

 

[V6_Man]

Some car buyers are being overcharged by more than £1,000 when they take out a loan to buy a car, the UK's financial watchdog has warned.

The Financial Conduct Authority (FCA) said the industry practice of allowing dealers to set their own interest rates was costing consumers £300m a year.

Dealers overcharge to boost their commission, the FCA concluded.

But the Finance and Leasing Association said the watchdog's survey was "based largely on out-of-date information".

Conflicts of interest

The regulator launched its investigation into the car finance market in April 2017 after there was a rapid surge in consumer credit led by car dealership finance.

At the time, it said it was concerned about a lack of transparency and potential conflicts of interest.

In its final findings on motor finance, the FCA concluded that the widespread use of commission models, which allow brokers discretion to set the customer's interest rate and thus earn higher commission, can lead to conflicts of interest that are not controlled adequately by lenders.

It said the practice can lead to customers paying significantly more for their motor finance.

More on this subject here -
https://www.bbc.co.uk/news/business-47438681

So, it looks like almost all of us have been hit by it . I am not sure if people will get any of their money back as these financial institutions are too strong...

 

[Daggerit]

Don’t know, I wonder if this will be the next PPI thing?


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[V6_Man]

Don’t know, I wonder if this will be the next PPI thing?


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Hope not, already fed up with all the nuisance calls re: the PPI


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[Richard46]

Hope not, already fed up with all the nuisance calls re: the PPI


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I have stopped getting these completely for about what a year? Indeed stopped getting any cold calling.

Back on topic; when I was visiting main dealers last month looking for a 'new' Audi I started to access dealers by timing how soon they stopped talking about the cars and started talking about FINANCE ( which I did not need or want) and how long they went on about it after I said I was not interested. In some cases it was the first 'subject' they raised and one they where very reluctant to drop.

This FCA report helps explain their keenness to 'help' with my finances.

edit I should in fairness note that two out of five dealers (thumbs up for Chelmsford & Cambridge Audi) did not mention finance at all.

 

[CarbonMike]

Don’t know, I wonder if this will be the next PPI thing?

Been saying this for years... the pcp bubble will burst some day soon i reckon.

Ive never had a car on pcp/finance/loan but Mrs has had a few now... be interesting to see what happens.

 

[B5NUT]

Audi dealers have started this nasty trick as well, was in the dealership the other week and the sales person I was talking with added a "customer loyalty discount" to my deal but when I looked at the figures they jacked up the interest rate from 2.9 to 6.4%. So asking why he raised the rate I was told to get the loyalty discount I had to pay a higher rate WTF, so told him to remove the discount and apply the advertised interest rate, which made the car over £1,000 cheaper..

Some people are either so desperate or blind when they walk into the dealers, they just see a shiny car but forget the dealership is out to take as much money as possible from you, the way I see it they are the enemy of your finances and must be treated as such.

 

[pxr5]

Of course the easy answer to this is to save up and buy with cash and stike a deal on that, but everybody wants things like tomorrow these days. Sign of the times.

 

[Audi_Rob]

I took out the Audi finance to get the "free" extras and then 3 months later took a loan to pay ifo the finance . This will save me about £900 over the 3 years and I still get to keep the free extras (eg 2 years free servicing on a used car)

 

[B5NUT]

If you can get the interest rate to zero or as low as possible to zero why bother robbing your saving, I'd rater keep the money in the bank as If I ever need the money then I not reliant on selling an asset if I need a large sum of money, I can just go to bank and take my money out.

Also dealers hate cash sales (not sure why) and as above it's better to get on finance then either pay that off or get a cheaper loan, as used car interest rates from Audi is a shocking 12%

 

[CarbonMike]

buy with cash and stike a deal on that, but everybody wants things like tomorrow these days. Sign of the times.

Not always the case. I bought mine outright cash. Well debit card but meh.

They were not willing to move on price at all. Nor up the part ex value instead.

Same happend with the potential purchase of an S4 Avant 2 weeks ago at an Audi main dealer.

 

[pxr5]

Also dealers hate cash sales (not sure why) and as above it's better to get on finance then either pay that off or get a cheaper loan, as used car interest rates from Audi is a shocking 12%

Wow @ 12%. Why would anyone use Audi Finance when a bank can do a loan for c3%?

 

[B5NUT]

I wondered that myself, but the 12% is on used cars, new range from 0-7% but even 7% is way to high in my eye's.