PCP Claims are an offshoot of Personal Contract Purchase (or PCP) which, in simple terms, is a form of finance you get from a finance company that makes you eligible to borrow and use a car from them. The way PCP works is that you will first be mandated to make an initial deposit which will then be followed by monthly payments for a set duration of usually between 18 months and 48 months, though 36 months is typical and common. The higher the deposit paid is a determinant of how lower the monthly payments will turn out.

In the UK, PCP deals are the most popular method of financing the purchase of a new car for customers, with 9 out of 10 (or 90%) of new cars financed this way. The reason for this is that PCP deals offer a relatively more affordable and flexible method of car finance. There’s a similarity between PCP and Hire Purchase (HP) but there’s a major difference between them. In an HP deal, you’re paying off the entire worth of the car in monthly instalments, but with PCP Claims you’re only paying off the depreciation that will accumulate on the car. In simpler terms, what you’ll pay is the difference between the value of the car at the start of the agreement and the value the dealer estimates the car to be at the end of the agreement.

Detailed example on how a PCP deal works

Assuming a car is initially valued at £25, 000—at the beginning of your contract. At the end of the deal (let’s say 2 years), the dealer expects the car to depreciate in value to around £15, 000. This means you’ll have to pay the difference over the period of the contract. And since we’re assuming the PCP deal to be 2 years, you’ll have to pay £10, 000 in monthly instalments over that period.

If you want to keep the car after the contract has elapsed, you’ll have to make a balloon payment. This payment is meant to cover the rest of the cost of the current value of the car. In essence, if your car now turns out to be worth the expected £15, 000, to gain ownership of the car you’ll have to pay the extra £5, 000.

Statistics from FCA on PCP mis-selling

In March 2019, Financial Conduct Authority (FCA), carried out an investigation about the car financing industry and came out with some statistics. The result of the investigation—from which these statistics are drawn from—was arrived upon by the FCA sending out mystery shoppers to 122 car dealerships in the UK.

  •  The FCA, through estimation, found out that mis-sold PCP is collectively costing consumers as much as £300 million yearly.
  • Some customers are paying way more (above £1, 000) for their car finance and this comes as a result of car dealers/brokers misinforming them on interest rates.
  •  Only 31% of the dealers explained that a customer does not outrightly own the car unless the final balloon payment is made.
  •  28% of dealers explained the penalties involved due to missing payments and the total amount payable.
  • Out of the 122 dealership outlets, only 11 made a suggestion that commission may be added to a PCP deal.

PCP Claims are based on the following facts

  •         Major parts of the car finance sector are made up of commission models through which brokers and finance intermediaries were, according to rates of interest paid by customers, remunerated proportionately.
  •         In most cases, as those rates were being set (within parameters) by the brokers or finance intermediaries, there was a strong incentive that calls for an increase in the interest rate being offered to customers.
  •         As pointed out by statistical analysis, the associated interest rates charged to customers were known to be higher than can be, for example, justified by differential risk reflected by credit scores. All of these ideas add up to the conclusion that PCP Claims are realizable against the dealer or brokers.

Have I Mis-sold a PCP?

  • Did your car dealer/broker explain in detail the specific aspects contained in your funding agreement including the amount of interest you would be paying?
  •  Did your dealer or broker raise a discussion about more than just one potential funding agreement?
  •  Did your car dealer or broker, at some point in time, reveal what level of commission, if any, they would receive?

If you’re oblivious of all the material facts that would have allowed you to make an informed decision in your car PCP deal, then you may be entitled to compensation.

So how do I get compensation for my PCP Claim?

The recommendation by the Financial Ombudsman Service (FOS) is that you first contact the business directly—and of course, make a case for PCP Claim compensation. If you get an unsatisfactory response after this point, you can then involve the FOS directly to take up the complaint on your behalf. Also, you can hire the services of a specialist solicitor to escalate your PCP Claim compensation.

About The Author

MotorPunk

An eclectic mix of roadtrips, motorsports for the poor, banger rallies and an appreciation of modern & retro classic cars.

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