Here’s why I won’t be claiming for car finance mis-selling
My first car was a clapped-out Ford Ka. It was covered in scratches, needed its oil topped up at least once a week, and shook when you got above 60mph.
After a few months of this my mum, perhaps fearing for my safety — or maybe concerned about how much I was spending on oil — helped me to buy a new motor.
Whizzing around town in my brand new, bright red Citroën C1, I felt incredibly lucky — but I also knew that the car was not technically mine. It cost £99 a month and after three years I would have to choose whether to make a “balloon payment” of about £2,000 to keep the car, or hand it back.
This was my first experience of car finance.
Since then I have had four more cars. Each was bought on a finance agreement, paid for monthly and gladly handed back after three or four years.
The whole thing seemed too good to be true but, honestly, I am yet to find the downside. I like that the car is always under warranty if anything goes wrong; I prefer the idea of effectively renting rather than owning a depreciating asset; and I enjoy that I can own a better car this way than I would be able or willing to buy outright (not that I’ve ever driven anything even vaguely fancy).
So while millions of drivers are lodging compensation claims for car finance, worried that they have been mis-sold, I am not one of them.
Today about 93 per cent of new cars are bought on finance, according to the Finance & Leasing Association, a trade body, with a record £51 billion borrowed in 2022.
But in January the City regulator, the Financial Conduct Authority (FCA), said it would investigate whether those who took out car finance before 2021 were unfairly charged more because of hidden commissions paid to their car dealer.
The concerns centre on how much interest you paid on your loan. In an arrangement known as discretionary commission, some salespeople were given a range to work within — the more interest they could get you to pay, the more commission they would earn.
In one example, a customer paid 5.5 per cent interest on a £7,619 car loan, when the lowest rate available was 2.49 per cent. This meant they paid £1,147 more over the five-year finance deal than they could have done.
About 36 per cent of car finance deals between 2013 and 2016 had discretionary commission and it is estimated that the final compensation bill for all this could be as much as £10 billion.
Readers we have spoken to have got back £1,000 or so each — although if you use a claims management firm to lodge your complaint, expect to give away at least 30 per cent of your payout.
No one deserves to be mis-sold and compensation where it is due can only be a good thing. If I dug out my old car finance contracts, maybe I would discover that I am owed thousands too. So why am I not doing this?
Call me pessimistic, but I can’t help thinking that there is little point in adding to the compensation bill. It is the consumer who will always pick up the tab in the end. When an industry is slapped with a big bill, customers tend to find that prices go up.
I also struggle to get riled up about a salesperson effectively just doing their job. It is disingenuous for anyone to claim that they did not realise the salesperson would earn money by making a sale.
As long as I leave feeling happy that the deal I have agreed for my car is good value and affordable for me, then — as long as there is no foul play at work — how much does it matter that I could have got a rate 0.2 per cent lower than I did?
Newsflash: some people are better at haggling and will pay less for cars, holidays, electronics and pretty much anything else you can think of. Meanwhile, some salespeople are very good at holding to a price and getting you to pay that little bit more. And so the world goes around.
Compensation payouts have been paused while the FCA continues its investigations, but you can still lodge a complaint. I expect many car finance customers will soon start getting phone calls — if they haven’t already — from the claims firms eager to jump on this latest gravy train.
• Why you may have a long wait for car finance compensation
If you truly believe that you were mis-sold, then make the complaint. But if you are just disappointed to hear you could have paid a bit less, you have to wonder if it’s worth it.
I worry about the consequences of this latest example of compensation culture — just because something didn’t go your way, it doesn’t necessarily follow that you should get compensation. What’s next I wonder, all those fixed mortgage deals sold after the government’s disastrous mini-budget in 2022?
@holly_mead_
