Car finance

What is car finance?

When you buy a new or used car, you might use a car finance agreement to do so. With these types of finance agreements, the consumer chooses a car - usually at a car dealership. The car dealership sells the car to the finance provider. The finance provider then owns the car. In return for making the monthly payments under the agreement, the finance provider allows the consumer to use the car. They are sometimes useful if you want to give the car back after a certain time or if you want to delay the decision to buy the car outright.

You might pay for a new or used car using a credit card or point of sale loan. If you've used this type of credit, you might be able to use something called "section 75" of the Consumer Credit Act 1974. 

There are three main types of finance agreement that people use.

• Hire purchase agreement or personal contract purchase (PCP) agreement

  You hire goods by paying in instalments. Then, at the end of the agreement, you can make the final payment (sometimes known as the balloon payment or guaranteed minimum future value) and become the legal owner of the car. If you don’t want to take ownership of the car then you won't pay the final instalment and can return the goods.

• Conditional sale agreement

  This is very similar to a hire purchase agreement - it essentially allows you to buy the car by paying in instalments. It differs in that there is an expectation that you will buy the goods outright and become the legal owner at the end of the agreement. However, most modern conditional sale agreements do contain options for you to return the car.

• Hire or lease agreement

  The finance provider owns the car throughout and allows you to use it in return for payment. Ownership of the car doesn’t pass to you but remains with the hiring company.

What we look at

• If a car is faulty or not of satisfactory quality

  If your complaint is about a fault with your car, we’ll look at whether:

  • a fault exists/existed
  • the fault means the car was not of satisfactory quality at the time of supply
  • your finance provider or the dealership has done anything to put things right

  As the finance provider is the supplier of the car, they are liable for the quality of the car when it was supplied.

  This is because the Consumer Rights Act 2015 implies a term into the contract that goods supplied under these types of agreements are of satisfactory quality.

  For cars bought with credit cards or point of sale loans, these terms are implied into the purchase contract with the dealership. But because of section 75 Consumer Credit Act 1974, we can, subject to certain criteria, look at these complaints against the credit card or loan provider.

  We think it’s fair to say that a reasonable person would expect the quality to be higher in a new car, than a cheaper, more roadworn car. And that a new car could be used and free from defects for a considerable period of time.

  It’s unreasonable to expect a used and more roadworn car to be in perfect condition and it’s likely the car will show signs of wear and tear. But a finance provider might still be responsible if the car was sold with defects that a reasonable person wouldn’t expect on a car of that price, age and mileage.

  Understanding satisfactory quality

  When we investigate whether a car was of satisfactory quality, we’ll look at things like:

  • the general state and condition of the car
  • its safety
  • whether it's free from minor defects
  • the appearance and finish
  • whether it's fit for its particular purpose
  • its durability

  If you’re bringing a complaint to us about the quality of the car, it’s helpful if you can provide us with any supporting evidence like:

  • adverts for the car
  • sales documentation
  • photos or videos you may have taken
  • breakdown reports
  • job sheets or invoices for work that might have already been undertaken to try to fix the car

  If lots of things have gone wrong, then a chronology of events setting out what happened and when is useful. But don’t worry if you don’t have all of this information – we can still look at your complaint.

• If a car or car finance agreement was mis-sold or misdescribed

  In some circumstances, the finance provider is liable for what is said by a credit broker or a supplier before you take out certain types of finance agreements. We can also look at some complaints about a mis-sale against the credit broker.

  If you feel that you’ve been misled about a key feature of the car or the finance agreement, we’ll look at things like:

  • what you say happened and what the dealer/broker says happened
  • any information you were given about the car before you bought it including invoices, brochures, manuals, adverts, the car service and MOT inspection history
  • relevant documents like the finance agreement and pre-contract information
  • supporting evidence such as correspondence showing anything that may have been said leading up to and shortly after any agreement was entered into, for example, emails and text messages

  If you bring a complaint like this to us, it’s helpful if you can provide us with any evidence like this that you may have. But don’t worry if you don’t have all of this information – we can still look at your complaint.

  If we think something was said that wasn’t correct, or that you were misled into taking out the finance agreement or getting the car, we’ll think about the impact this has had on you and what you might have done differently.  

• Excess mileage and damage charges applied at the end of the agreement

  Excess Mileage charges

  If your complaint is about excess mileage charges and you didn’t know that there was an annual mileage cap when you entered the agreement, we’ll investigate whether the finance agreement was mis-sold to you. 

  If you knew about the annual mileage cap, but don’t think those charges are fair, we’ll look at the circumstances in which the car was given back and what the agreement says about the annual mileage cap. We’ll also look at what was said at the point of supply and your specific circumstances in deciding whether it is fair and reasonable for you to pay all or part of the charge.

  Damage Charges

  If your complaint is about damage charges being applied when you returned the car at the end of the agreement, we’ll look at things like:

  • what your agreement says about how charges can be applied
  • what you say about the damage or charges
  • each individual damage charge and whether it was fair and reasonable for your finance provider to apply it – taking into account industry guidance and the age and mileage of the car when first hired and returned
  • the quality of any inspection reports given to us by the business and any photos or videos you have
  • whether the amount of the damage charge is proportionate to the damage/repair work needed, or whether a cheaper repair could be done
  • any impact that a delay in collection or in a report being prepared post-collection, might have had
  • whether you were given an opportunity to repair any damage before returning the car

Putting things right

• Faulty cars

  If we don’t think the car was of satisfactory quality, we’ll look at what may have been done already to put things right. If things haven’t been put right, we might say the finance provider should:

  • repair the car if we think a repair is reasonable and will resolve the issue
  • replace the car if there’s a suitable like-for-like replacement available
  • give a price reduction
  • allow you to give back the car and end the agreement – if we think that rejection of the car is reasonable

  We might also suggest that you’re given compensation if:

  • you haven’t had use of the car
  • your use of the car has been impaired
  • you’ve been caused distress and inconvenience

  If you have incurred any costs relating to the complaint – for example storage costs – we’ll consider whether it’s reasonable for you to be reimbursed these costs. 

• If a car or car finance agreement was mis-sold or misdescribed

  If we find that the car or the agreement has been mis-sold or misdescribed, we’ll consider what impact this has had on you. We might ask the business to: If we find that the car or the agreement has been mis-sold or misdescribed, we’ll consider what impact this has had on you. We might ask the business to:

  • award you compensation to reflect any loss you’ve had by not getting what you were promised – like a particular feature on the car
  • write off some or all of the charges under the agreement –  if we think they weren’t properly brought to your attention
  • end the agreement and take back the car – if we think you wouldn't have gone ahead with the transaction, or if it would be unreasonable to expect you to continue with the agreement

  We might also suggest that you’re given compensation if:

  • you haven’t had use of the car
  • your use of the car has been impaired
  • you’ve been caused distress and inconvenience

  If you have incurred any costs relating to the complaint – for example storage costs – we’ll consider whether it’s reasonable for you to be reimbursed these costs.  

• Excess mileage and damage charges applied at the end of the agreement

  If we think the charge for excess mileage and/or damage is unfair or unreasonable, we may ask your finance provider to waive some or all of the charges.