Reckless car loan salesmen exposed
Ruthless salesmen are offering customers Audis, Vauxhalls, Suzukis and Fords worth up to £20,000 for no deposit - even if they admit they are unemployed, on low wages or have a poor credit rating.
But the deals commit them to paying hundreds of pounds per month for years. If they fail to keep up payments, they face having the cars repossessed and court orders forcing them to pay the outstanding loan. In some cases, dealers are contributing up to £1,000 to the personal contract purchase (PCP) deals and offering zero per cent interest rates as incentives. Some pay-monthly deals result in the driver eventually paying less for the car than if they had bought it for cash on the day.
Dealers do this because the vast majority of drivers on PCP deals don’t pay off the car in full. They pay monthly for a few years before returning the car and starting a new deal – a cycle they continue.
There has been a surge in motorists taking out loans for new cars and defaulting on payments. In a chilling echo of the sub-prime mortgage crisis of 2007, car finance firms packaged and sold £5.5billion of risky loan debt to investors last year – twice as much as the year before. Last week, the Bank of England warned that drivers owe £58billion on car finance – an increase of 15 per cent in a year.
The deals allow drivers to have a new car for a few years in return for monthly payments. At the end of the contract, they are given the option to pay off the remainder and own the car, or to return it.
There are strict mileage limits, and drivers are charged extra if they damage the car. To end an agreement early, they have to pay off at least half of their debt.
If the driver falls behind on payments, the finance company can repossess the car and apply for a County Court Judgment (CCJ). An order can be made so the money is automatically taken from the owner’s wages. A charge can be put on their home, their bank accounts can be frozen and bailiffs can seize possessions. The CCJ stays on their credit file for six years, making it difficult to get a mortgage or a personal loan.
But with increasing numbers of new cars sold on three to five-year PCP deals, the second-hand car market is being flooded, bringing values down. The Bank of England warns that if the value of second-hand cars keeps falling, banks risk losing as much as £1.7billion. This could lead to spiralling costs for consumers. Governor Mark Carney said lenders appeared to be ‘forgetting the lessons of the past’.
Tory MP Huw Merriman said: ‘Reckless lending can destroy the economy. It also has a devastating impact on those who get in to serious debt. If the industry cannot get its house in order then our regulators need to take action to protect us all from the practices uncovered by this investigation.’
Extract from the Daily Mail P1 Monday 3rd July, 2017
A day of reckoning looms for irresponsible new car dealers. Avoid the many pitfalls of acquiring your next vehicle by PCP and trust in good old fashioned car ownership through a bira bank car loan.