Tom was struggling with keeping up with his car finance repayments, and when his lender told him that they were taking the car back and that it could affect his credit file, he came to us.

What happened

Tom got in contact with us to say that he’d been struggling to pay his car finance agreement. He explained that he’d missed two repayments and the finance company had said it was going to take back the car. It had told him that he would likely still owe some money even after the car had been taken back and his credit file might be affected.

After talking through his circumstances we’d established that Tom had only had the car around six months and had missed the third repayment that was due under the finance agreement. He did repay this but continued to struggle meeting the repayments.

We asked Tom for some more details about his circumstances and also asked the finance provider what it knew about Tom’s circumstances when he took out the finance. The finance company said it knew that Tom was working and that he passed their underwriting assessment. It had also performed a credit check and there was nothing to show that Tom had any problems with debt.

Tom told us that he was 24 years of age, working and lived in rented accommodation. His take home pay was around £1,200 each month, he paid around £450 rent, £200 in utility bills and food, plus £200 each month to a credit card and previous car loan that hadn’t been cleared.

The new car finance agreement cost £245 each month and was over three years.

What we said

After considering what both parties had told us, we explained that we didn’t think the car finance provider had done enough to satisfy itself that Tom could actually afford the repayments. We accepted that a credit check would likely identify any problems Tom had in repaying what he’d previously borrowed, but this doesn’t necessarily show that he can afford to take out more credit.

Considering the £245 each month repayment amount we felt that the finance company should have asked more about Tom’s circumstances, rather than just if he was working. Establishing his existing income and expenditure would have highlighted that Tom would have found it difficult to repay the additional £245 required each month for the new finance agreement. The cost of car insurance and petrol alone was likely to use up any disposable income and that was without allowing for any other existing monthly expenditure.

We found that had more appropriate checks been carried out the finance provider would not have agreed to the credit and declined the application. To put things right we told the finance company to take back the car, cancel the remaining finance amount and correct any adverse entries it had applied to Tom’s credit file. We noted that Tom had been using the car so we thought it reasonable that he pay something towards that. We didn’t think it was reasonable for the finance company to keep the £500 deposit Tom had paid towards the car, so we said it should refund this with interest.