Car finance is how most people buy their vehicle

Car finance has become big business.  A huge number of new and used car buyers in the UK are making their vehicle purchase on finance of some sort.  It might be in the form of a bank loan, finance from the dealership, leasing, credit card, the trusty ‘Bank of Mum & Dad’, or myriad other forms of finance, but relatively few people actually buy a car with their own cash anymore.

A generation ago, a private car buyer with, say, £8,000 cash to spend would usually have bought a car up to the value of £8,000.  Today, that same £8,000 is more likely to be used as a deposit on a car which could be worth many tens of thousands, followed by up to five years of monthly payments.

With various manufacturers and dealers claiming that anywhere between 50% and 95% of car purchases are today being made on finance of some sort, it is not surprising that there are lots of people jumping on the car finance bandwagon to profit from buyers’ desires to have the newest, flashiest car available within their monthly cashflow limits.

The appeal of financing a car is very straightforward; you can buy a car which costs a lot more than you can afford up-front, but can (hopefully) manage in small monthly chunks of cash over a period of time.  The problem with car finance is that many buyers don’t realise that they usually end up paying far more than the face value of the car, and they don’t read the fine print of car finance agreements to understand the implications of what they’re signing up for.

For clarification, The Car Expert is neither pro- or anti-finance when buying a car.  What you must be wary of, however, are the full implications of financing a car – not just when you buy the car, but over the full term of the finance and even afterwards.  The industry is heavily regulated by the FCA (Financial Conduct Authority, formerly the Financial Services Authority), but the FCA can’t make you read documents carefully or force you to make prudent car finance decisions.

Car finance – financing through the dealership

For many people, financing the car through the dealership where you are buying the car is very convenient.  There are also often national offers and programs which can make financing the car through the dealer an attractive option.

This blog will focus on the two main types of car finance offered by car dealers for private car buyers: the Hire Purchase (HP) and the Personal Contract Purchase (PCP), with a brief mention of a third, the Lease Purchase (LP).  Leasing contracts will be discussed in another blog coming soon.

Car Finance - the Hire Purchase (HP)

Car finance - how a hire purchase works - The Car Expert

An HP is quite like a mortgage on your house; you pay a deposit up-front and then pay the rest off over an agreed period (usually 18-60 months).  Once you have made your final payment, the car is officially yours.  This is the way that car finance has operated for many years, but is now starting to lose favour against the PCP option below.

There are several benefits to a Hire Purchase.  It is simple to understand (deposit plus a number of fixed monthly payments), and the buyer can choose the deposit and the term (number of payments) to suit their needs.  You can choose a term of up to five years (60 months), which is longer than most other finance options.  You can usually cancel the agreement at any time if your circumstances change without massive penalties (although the amount owing may be more than your car is worth early on in the agreement term).  Usually you will end up paying les in total with an HP than a PCP if you plan to keep the car after the finance is paid off.

The main disadvantage of an HP compared to a PCP is higher monthly payments, meaning the value of the car you can usually afford is less.

An HP is usually best for buyers who; plan to keep their cars for a long time (ie – longer than the finance term), have a large deposit, or want a simple car finance plan with no sting in the tail at the end of the agreement.

Car Finance - the Personal Contract Purchase (PCP)

Car finance - how a PCP personal contract purchase works - The Car Expert

A PCP is often given other names by manufacturer finance companies (eg – BMW Select, Volkswagen Solutions, Toyota Access, etc.), and is very popular but more complicated than an HP.  Most new car finance offers advertised these days are PCPs, and usually a dealer will try and push you towards a PCP over an HP because it is more likely to be better for them.

Like the HP above, you pay a deposit and have monthly payments over a term.  However, the monthly payments are lower and/or the term is shorter (usually a max. of 48 months), because you are not paying off the whole car.  At the end of the term, there is still a large chunk of the finance unpaid.  This is usually called a GMFV (Guaranteed Minimum Future Value).  The car finance company guarantees that, within certain conditions, the car will be worth at least as much as the remaining finance owed.  This gives you three options:

1)   Give the car back.  You won’t get any money back, but you won’t have to pay out the remainder.  This means that you have effectively been renting the car for the whole time.

2)   Pay out the remaining amount owed (the GMFV) and keep the car.  Given that this amount could be many thousands of pounds, it is not usually a viable option for most people (which is why they were financing the car in the first place), which usually leads to…

3)   Part-exchange the car for a new (or newer) one.  The dealer will assess your car’s value and take care of the finance payout.  If your car is worth more than the GMFV, you can use the difference (equity) as a deposit on your next car.

The PCP is best suited for people who want a new or near-new car and fully intend to change it at the end of the agreement (or possibly even sooner).  For a private buyer, it usually works out cheaper than a lease or contract hire finance product.   You are not tied into going back to the same manufacturer or dealership for your next car, as any dealer can pay out the finance for your car and conclude the agreement on your behalf.  It is also good for buyers who want a more expensive car with a lower cashflow than is usually possible with an HP.

The disadvantage of a PCP is that it tends to lock you into a cycle of changing your car every few years to avoid a large payout at the end of the agreement (the GMFV).  Borrowing money to pay out the GMFV and keep the car usually gives you a monthly payment that is very little cheaper than starting again on a new PCP with a new car, so it nearly always sways the owner into replacing it with another car.  For this reason, manufacturers and dealers love PCPs because it keeps you coming back every 3 years rather than keeping your car for 5-10 years!

For more detail on PCPs, check out The Car Expert’s latest article about how they work.

Car Finance - the Lease Purchase (LP)

Car finance - how a lease purchase works - The Car Expert

An LP is a bit of a hybrid between an HP and a PCP.  You have a deposit and low monthly payments like a PCP, with a large final payment at the end of the agreement.  However, unlike a PCP, this final payment (often called a balloon) is not guaranteed.  This means that if your car is worth less than the amount owing and you want to sell/part-exchange it, you would have to pay out any difference (called negative equity) before even thinking about paying a deposit on your next car.

Read the fine print

What is absolutely essential for anyone buying a car on finance is to read the contract and consider it carefully before signing anything.  Plenty of people make the mistake of buying a car on finance and then end up being unable to make their monthly payments.  Given that your finance period may last for the next five years, it is critical that you carefully consider what may happen in your life over those next five years.  Many heavily-financed sports cars have had to be returned, often with serious financial consequences for the owners, because of unexpected pregnancies!

Always ensure you understand the various finance options being presented to you, and that you are aware of the pros and cons of different car finance products to ensure you are making informed decisions about your money.

*HP, PCP and LP car finance images courtesy Evans Halshaw.

Further reading: Logbook loans

The Car Expert has written a blog about the growth of logbook loans in the UK finance market.  These are monetary loans rather than loans to buy a car, and are a completely different product.  Logbook loans are very high interest loans secured against your current car (which you must own outright) and are pretty much a last resort for anyone needing money but unable to borrow it through normal channels.  Avoid if at all possible.

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Stuart Masson is the owner and editor of The Car Expert, a London-based website which provides expert and impartial advice for anyone buying a new or used car, as well as news and information from all over the automotive world.

This Post Has 75 Comments

  1. Daniel Barry

    I bought a car on finance (Santander are the finance backers) through a dealer, without realising anything was wrong, I signed the Car over to my partner as I have recently changed job, and get a car with the job. We both still live at the same address and are together, where do I stand on this? Will Santander chase me for the full amount owed on finance, or will they still be happy to take payments as obviously I havent sold the car, still at my address, just changed the registered keeper to my wife. Honestly had no clue there was anything wrong with that until a letter from santander came through asking if I had sold the car or not?

    I dont want to lose the car obviously, would the answer be to sign the V5 back into my name or have I got any standing with Santander?

    1. stuart

      Hi Daniel. Call Santander and chat to them about it. Under the terms of your finance agreement you are not allowed to sell the car as it’s not really yours to sell, but obviously it’s still within your household nothing else has really changed. They will basically want to know why you have changed the Keeper Name to your wife, but I would doubt that they will insist on you changing it back again. They may ask for you to send through a copy of the logbook to show that your wife is now the Keeper for their files. Generally speaking, finance companies used to be more relaxed about married couples and vehicle ownership, but that is changing as there is no guarantee that a couple will still be married throughout the whole duration of the agreement!

      1. Daniel Barry

        Phoned Santander and explained the situation. They didnt even bat an eye, said as long as we both still live at the same address and the payments are fine there’s nothing to worry about, just send a copy of the new V5 to them for their updated records!
        Just thought I would share to show its not all doom and gloom, especially when the intent is harmless.

  2. nikki h

    I got a car on finance in january on 5yr hp. circumstances have changed, we are moving house and getting a larger mortgage plus my insurance is going to go up by quite a bit when we move. I would now like to swap to a cheaper car but to terminate my agreement it states not only do i have to give the car back but to pay £7500 on top. surely just giving the car back should be enough after only 8months.

    1. stuart

      Hi Nikki. You always suffer a significant amount of depreciation in the first year of your agreement, particularly if you have bought a new car but even if it’s a used one. Have a read of this article about settling your finance early – your car’s value will always fall faster than your repayments at the start of the agreement, and after a while it will then level out and you will ‘catch up’ again. After 3-4 years of a 5-year HP you should be in front (your car will be worth more than what you owe). It is perfectly normal for you to have to pay a significant financial penalty if you want to sell the car back after such a short time.

  3. samantha

    hi stuart, i cannot get fiance to lease a car in my name as my credit is bad, but my mum has offered to fiance it for me in her name, she doesn’t have a driving license, but she would not be driving the car anyway just taking the fiance out for me…is this possible as we are being told that she would have to have a driving license? please can you suggest anything?
    regards sam

    1. stuart

      Hi Samantha. No, your mum can’t finance the car for you – unless the finance company specifically allows it, and I don’t know any that do. It’s called an accommodation deal and you can read about it here. Dealers are supposed to tell you this and bluntly refuse to take a finance application, as they could be in trouble as well as you.

  4. Alice Garside

    I recently put down a deposit on a VW polo from a VW dealership in Reading subject to the test drive. Went in, signed all the contracts subject to finance company accepting. Was asked to provide additional documents to the finance company which weren’t valid and then told that needed a minimum of 3 months proof of documents which I couldn’t provide. Was told verbally that I couldn’t get it on finance so to buy outright and when I said that I wasn’t able to do that was told I’d get my deposit back. It’s now been an unacceptable amount of time and rang up today to be told that the notes from the finance company is still waiting for documents and not an outright declining. Even if they do come back and accept me, I have since bought another car so I want to know where I stand on this please.

    1. stuart

      Hi Alice. Sorry to hear it hasn’t worked out. It’s perfectly normal for finance companies to insist that all documents have to be dated within the last three months to make sure the decisions they are making are based on the most current information available.

      I’m not sure what documents they would be waiting for, other than documents from you, so if you don’t provide those documents then they can’t approve the application – so your contract for the car is not valid and you are entitled to your deposit back.

      If you are struggling to get your deposit back from the VW dealership then take the matter up with VW Head Office in Milton Keynes. That should get things moving.

  5. James Thomson

    Hi Stuart, I have recently been made redundant and my finance company will not offer a holiday payment scheme however at the very beginning I had a different car which was not fir for purpose and was returned and a new finance agreement taken out on a new vehicle. I have never signed this agreement, Am I liable for the costs or can I say thank you very much and hand the vehicle back including all my payments to date?

    1. stuart

      Hi James, sorry to hear about your situation. I’m not sure what the answer is to your question, as I am surprised that the finance company ever paid out on an agreement which had not been properly signed. Morally, I would say that your ongoing payments and ownership of the car would constitute an acceptance of the agreement even though you didn’t sign it – if you didn’t agree with the terms then you should not have taken delivery of the vehicle. This is certainly the argument that the finance company is likely to make.

      Whether or not it creates a legal loophole to allow you to return the car without further payment is a question I am not qualified to answer, and you would need someone who can give you legal advice.

      Depending on how long you have had the car, you may qualify for voluntary termination of the agreement. Have a read of the linked article for more info, but basically if you have repaid 50% of the total payable amount, you can give the car back. Best of luck, stuart.

  6. gavin

    Hi, I am gavin,

    I recently went to tradecentrewales and got accepted for finance, signed the paperwork but backed out as I went to their other garage and picked a different car from there instead and got accepted. I have now seen a different car in the renault dealers but got refused finance there. Can I get the finance from tradecentrewales but buy the car from renault with the money?
    Help me please?

    1. stuart

      Hi Gavin. Who was the finance company that Trade Centre Wales were using? You may be able to contact them directly and complete your finance paperwork. What has probably happened is that your credit history is showing multiple finance applications in a short space of time, so the finance company at the Renault dealer would assume that because you made two applications already but have not bought a car, you have been declined finance and are looking for someone else to finance you.
      Have a read of this article – Before You Apply For Car Finance – and it will explain in more detail. Golden rule – once you have found a car you are happy with and signed up, stop looking!

  7. Dan

    Been looking at a car from a local garage for the last few days. Went to look at it in person this morning and fell in love after the test drive. So that was it, off to the desk to sort the finance out. After doing all the details the finance company refused to finance the car as it was too old?.. Why would a garage offer finance on a car if it was to old? Surely they should be up to date on this sort of stuff with doing it daily?

    1. stuart

      Hi Dan. Yes, that’s very annoying. However, it may be that the is not too old to finance as such, but too old to structure the finance in the way you want to do it. Some finance companies insist that a car has to be under a certain age & mileage at the end of the finance agreement. For example, if the finance company says the car must be no more than 6 years old at the end of the agreement and the car is 4 years old now, then the longest finance term you could take would be two years. (Or, as you say, it may be that the dealership is advertising finance for the car when it shouldn’t be.)

      1. Dan

        Yeah the car had all the stickers over it for finance, but its a 52 plate model. As we sat down he told me due to the age it could only be taken over a 3 year period or less. But after doing all the details and waiting for a reply it came back as can’t be financed. Guess it’s just one of those things, but they should of checked before hand as people take time out of there day to travel :-(

  8. Niyi A

    Hi Stuart, thanks for this article, I hope you or someone else can answer my question. I visited a dealer over the weekend and took out a PCP for a new car, on the screen it said the “proposal” had been accepted and I signed all the paperwork. I am due to collect the car tomorrow and the dealer has just called me asking to bring 2 months statements with me so they can fax them to their finance provider, do you think the deal can still fall through? I have already paid 5k as a deposit… Is it just a formality and I am fretting over nothing? Many thanks

    1. stuart

      Hi Niyi. Sounds like it should be fine. If the finance company is waiting on bank statements before they pay the dealer, it may take a little while before you are allowed to drive off in your new car. Or it may already have been paid out and the dealer forgot to get that information from you beforehand. Make sure you check all of the paperwork you are given regarding the vehicle to ensure that none of the numbers have changed from what you have agreed to. And of course, enjoy your new car!

      1. Niyi A

        Thanks Stuart, I guess I am just concerned because there has been a lot of activity in my account the last two months as I have had a few payments to make. I have also just been given a 15% raise which of course won’t be reflected until the end of this month.

        I have also seen some remarks elsewhere that all the finance co is looking for is confirmation of address and that salary/income is enough to cover the repayments. I suppose it’s always when you’re excited for something that you worry the most!

        1. stuart

          Yes, the finance company will be looking for confirmation of who you are, whether you have any adverse credit history and whether you can realistically afford to repay the amount you are financing. This is all normal.

  9. Tk

    Hello, please can you advice, we are about to buy a VW toureg on finance, and although I have a good credit rating and i earn a good wage to afford this. when I visited the dealer as I had the kids with me, I did not concentrate to ask the appropriate questions.

    The sales man came up with a random 534 payment for the month and I told him this was too high. We finally settled for a 499 HP repayment per month and managed to haggle on little extras i could get such as free 2 year service and AA membership. I signed the vehicle order and awaited to know if I passed the credit check for the finance.

    However on getting home all the questions I should have asked flooded me, as I do not know the loan APR. As we dealt in monthly payments rather than Apr. I think I am being charged 13.7% . As loan is £21703 over 5 years. £499 payment per month. Do you think this is this a good rate?

    Whilst I signed up for a Gap insurance and an extended warranty of 12mths , also with a glasscoat protection as the car is about to be 3 years old.

    I only realised when I got home that the salesman had added a year road tax on the finance without mentioning this, which made me more angry.

    I very much want the car. My question is even though I have passed the finance can I tell the dealer I am not happing with 13.7% APR and if they would reduce this.

    Also I don’t plan to pay for the road tax as I expect the dealer to pay for this.

    Overall looking at it, do you think I got a good deal?. Thanks in Advance

    1. stuart

      Hi Tk. As I understand it, you have signed an order for the vehicle but not the finance agreement. If it’s a used car, you can’t assume it will have road tax. So if you haven’t asked about it, you can’t assume they will simply throw it in for free. The glasscoat is probably a waste of time on a 3-year-old car, so you can cancel that part if you like.

      13.7% is high, but it is not unusual or unreasonable for a used car. The low rates that you see advertised everywhere are normally only for new cars, as the manufacturers are obviously more interested in buying a new car than one they built a couple of years ago. £500/month x £60 months means you will be paying £30K for this car by the end of it. You should check our checklist of things to consider before applying for car finance, as it sounds as if you rushed into this.

      If you haven’t signed the finance agreement, then you are not bound by anything except that you have committed to buying the car. If you can get finance cheaper elsewhere, then go for it.

  10. sharon

    Hi, I took finance out on a car after I had seen it, when I went to pick it up it had a chipped and cracked windscreen and the mot reported that the exhaust was deteriorated. I then said i do not want the car and did not sign any of the paperwork and walked out. When i phoned the finance company thay said i have to take the car because thay have already paid the dealer. The dealer says they are fixing the window and exhuast and i have to take the car. I do not want the car. The finance company say i signed finance papers. I know this is wrong I did not take the car, I did not sign dealership papers why can’t they roll it back as first promiced? I do not want this car that are all dragging things out so the 14 day cooling period expires… They are bulling me to take something I do not want. Help!!! What are my legal rights??
    The car dealership

    1. stuart

      You have a 14-day cooling off period for your finance agreement, so you need to be very clear and reject the car in writing (CC-ing the finance company) and also cancelling your finance agreement in writing (quote the wording and clause on your finance agreement).

      If the dealership has repaired/replaced the windscreen and exhaust, then they can argue that they have reasonably taken appropriate steps to bring the car up to standard. Why do you now want to reject the car if the contentious issues have now been resolved?

      1. sharon

        Hi Stuart thank you for getting back to me. I do not trust that the glass will not fully shatter. then I will be liable for replacing it .myself, when I didn’t expect to be buying a car that’s going to need work done on it

        1. stuart

          I can understand that you don’t particularly trust the dealer, but if they are replacing the windscreen then it will be as good as new. It’s not like replacing a tyre, where they might put a cheap-but-legal tyre from a no-name brand on the car; a windscreen is a standard specification wherever you buy it and whoever buys it.

  11. Mickey

    Bought a new car on pcp last week.Already the registration back number plate has started fading.Is there anything I can do.Also do pcp cars come with a 14 day cooling off period?.

    1. stuart

      Hi Mickey. Your PCP should come with a 14-day cooling-off period, so check your finance contract. However, this applies to the finance agreement and not to the car itself, so it does not mean you can simply give the car back – if you cancel the PCP, the finance company will simply invoice you for the amount financed and you will have to pay it all immediately.

      As for your number plate, given that it was a new car I would say that the plate is probably not fading and more that it was not made correctly. The dealer should be happy to swap it for another one, since most dealerships make them on-site.

        1. stuart

          Yeah, that’s perfectly normal. The car has to be moved around while in transit (onto and off of ships & trucks, parking in holding yards, etc), it has to be road tested as part of its pre-delivery service and they will usually drive it to the nearest petrol station to put some fuel in it. Up to 20 miles is perfectly normal and often it will be even more than that.

  12. Liam

    What about just hiring a car when you need one? Personally, I know some people who have cars that actually don’t use them all that often – people living near the city or where they work is a good example. What I recommend is perhaps just hiring a car when you are on a long journey. In the long run I think this could save you a lot of money – but what do you think?

    1. stuart

      Hi jay. This is the fee which is chargeable if/when you complete the agreement in total. So, on a PCP, if you finish your term and pay out the balloon, you then have to pay the “option to purchase” fee. It’s entirely normal, and it should be clearly stated in your finance agreement.

  13. nadia

    hi we have recently got a car on pcp about 8 weeks old now we did originally agree verbally / on paper to hp but got talked into pcp by a friend who worked in the car business (we’ve always previously had cars on hp) and want to change the finance back to hp but neither the dealership or the finance are helping / giving advice, what is the best way to go onto hp with the least cost . thank you

    1. stuart

      Hi Nadia. If you have had the car for 8 weeks now, then you won’t be able to simply cancel it and take an HP instead. All finance agreements have a 14-day cooling-off period, but after that you are committed to it. You will have to settle the agreement in full to get out of it, but you probably won’t be able to then take an HP on the same terms. Your best bet is probably to save up the additional payments you would have to be making on an HP and then use that amount to settle the PCP balloon at the end of the agreement.

      1. nadia

        thank you …. we’ve been speaking to the finance company and they will allow us to make a large payment to settle the finance on the car and then any additional lump sum payment to pay off the balloon payment which we want to do in 3 years time as we would have done with a hp ….. we were frustrated by no one actually telling us a way to do it or explaining ways which really annoyed us. thank you for replying.

  14. Don't want to give lest seen

    I thought V5 now states registered keeper may not be owner of vehicle. This obviously is the case as finance company legally own car until it is paid for. I have been advised I have rights as agreement is between me and the finance company. Is this not true? Surely there is something I can do to take back ownership of the car. My daughter in-law was totally aware I was not gifting her the car. I paid the finance and she paid me. Is there anyway I can get the V5 changed other than with her agreement?

    1. stuart

      Not necessarily. The finance company owns the vehicle in a lease situation, which means they keep the V5 and they are the vehicle keeper. With a PCP or HP, you are the owner – in the same way can own a house with a mortgage on it, but the bank as a listed interested in the house. Chances are the finance company won’t be very happy with you, as you are operating an accommodation deal where you pay for the car and your daughter-in-law pays you (and is the main driver). They don’t allow this, precisely because of the situation you are now in.

      Unfortunately, if you freely signed the car over to her, you are unlikely to have an easy way to get it back again – otherwise, what is the point of signing it over in the first place?

      1. Don't want to give lest seen

        I honestly didn’t know I was doing anything wrong. The car dealers knew I was getting the car for my daughter in-law as I finance a car through them too. I was badgered for months to sign the V5 (I didn’t fill it in) as she said it would make no difference to my owning the car. Naturally no one expected the marriage to end. If I am the owner of the car, and not the finance company (law centre told me finance company own the car), how come she has not committed theft by removing the car I own without my permission? I reiterate registered keeper does not mean you own the vehicle.

        1. stuart

          If you have freely given her the keys and the logbook then you can’t claim it as theft, so the owner vs. keeper debate is largely unimportant. I suggest you read through your paperwork and check with the finance company directly for their advice (note – not the dealer that sold you the car; they simply act as an agent for the finance company). By the sound of it, she clearly had motive for wanting the V5 in her name, but the reasons are all irrelevant now. I’m guessing that you probably don’t have any written agreement with her regarding the use of the vehicle and the payment she is due to make to you, so it is basically your word against hers. Unfortunately, the finance company will be chasing you and not her, so she has very little to lose by not giving the car back.

          1. Don't want to give lest seen

            We agreed she would use car from marital address. I didn’t pass ownership of vehicle over. My daughter and daughter in-law assured me I would never find myself in this situation. and signing V5 was to enable her to get insurance. I cannot believe I have no options legally to get the vehicle back.

          2. Don't want to give lest seen

            Actually I didn’t give her the car keys. She and my daughter picked the car up from the car dealership. Although she was the driver and changed the V5 details she knew I was not giving her the car. Would she have done something wrong if she evidenced on V5 she was the owner of the car? I am just looking for a loop hole. There must be some way round this. Surely to goodness she is only the registered keeper and not the owner of the vehicle. She removed the vehicle from the marital address without my permission, and i would assume hasn’t even informed the DVLA of this. Can I use V62 or V34 form to register car in my name?

        2. andrewtaylor

          Anonymous person, you are either incredibly stupid or lying. if the finance is in your name then how was she able to take delivery and have the v5 changed? you either arranged it or allowed it and now your upset about it. the only person you can blame here is yourself

  15. Don't want to give lest seen

    I took out car finance through a car dealership, and the V5 was registered in my name. My daughter in-law badgered me to change the V5 to her name. She has now left marital home, and taken the car. There is still 24 months finance left. What happens now? I know the finance company own the car. What do I do to get car back?

    1. stuart

      Check through your contract paperwork and contact the finance company. In most finance agreements, you are not supposed to sell the car on while it is on finance. Given that you signed the car over to her, she will now be the registered keeper of the vehicle in the eyes of the law and there’s probably not a lot you can do to get the car back. And since the finance agreement is in your name, if you stop paying for the vehicle then the finance company will be after you, not her. I think you’re probably stuck paying for it unless you can convince her to return it and sign the V5 back over to you, unfortunately.

  16. morag mackenzie

    Do I need to take out vehicle protection insurance which guarantees if my car is stolen etc and the car company Arnold Clark will guarantee any shortfall in price from insurance company. Its been added into a finance agreement/order. I dont think I need it and ive also added 3 yr service and MOT into the 48 mth plan which makes total amount of credit nearly 500 more with 11% APR. I was trying to save on running costs by buying up front.I also part exchanged my car against this used car that should be my deposit, but also wanted £100 deposit which is added onto finance its HP as I keep car at end of 48 mths. I think they have made a mistake. Advice appreciated.

    1. stuart

      Hi Morag,

      No you don’t need to take out these additional insurances. Like any insurance product, you weigh up the cost of the product vs the risk of not being insured. The dealership cannot add these onto the order without your consent and without giving you a full (FCA-compliant) explanation of the products. They also have to confirm your eligibility for the products (not all products are available for all customers). Similarly, you don’t have to sign up to their service and MOT plan unless you feel that it is a good deal – you can get your car serviced anywhere you like.

      The reason they may have wanted an additional £100 deposit from you is because they can’t include the GAP/vehicle protection or any other insurances on the financed amount. Therefore those products have to be paid for in cash (or from your part-exchange), and I’m guessing that your part-exchange valuation doesn’t cover these products.

      From your description, it doesn’t sound like they have made a mistake; it sounds like they are being a bit sneaky…

      1. morag mackenzie

        Yes I think youre right. It was after I went away I thought Id already part exchanged my 7 year old punto which I had paid a lot for to put thru its MOT. That would be classed as my deposit my car but then salesman asked for deposit of £100 for this coming wed and I didnt have that for wed as I had jst paid out 277 on MOT. I had agreed to buy car for this wed at reduced cost of 155 over 47 mths instead of 160 but then they added 100 onto finance making it 157 over 47 mths plus 11% APR..and I didnt think that was right. I did ask for 3 yr service & MOT to be added, but I think ill take it off. I didnt realise I could take car to other garage for service. I tht full service history had to be with the garage that you bought the car from. Id heard it had to be Arnold Clark or fiat dealer stamped. Its a vehicle order agreement. Ive esigned and ive updated my insurance company details yesterday. It does show 100 contributions or deposit paid by customer on the order agreement but 100 more on to total of balance due by finance company.

      2. morag mackenzie

        Sorry meant to add they have included 199 for vehicle replacement Iinsurance and 289 for 3 yr MOT/service on top of car price of 7988 making it 8501 then took px off 2200 then add 100 deposit to finance which was 6201 t 155 x 47 and 1 payment of 455.53 inc typical finance company settlement fee and now 6301 with xtra 100 deposit and 157.53 x47 etc. I still want the car and has updated insurance and esigned can I change my mind about these insurances as nearly 600 is being added onto finance inc the £100 deposit. One more thing can I take warranties out at any garage too, as has 2 mths warranty and full years MOT and r/tax its a Fiat 500 1.2 lounge, 11 plate.

        1. stuart

          Yes you can change your mind about the insurances. Even if you have already signed the insurance contracts (which are separate to the finance contracts), you have 14 days to cancel for a full refund.

          The warranty they are offering is almost certainly a third-party warranty (basically an insurance policy), and you should be able to look online and find the same or similar policies. In the event of making a claim, none of them are as good as a factory warranty, but some are better than others. Not sure which one the dealer would be using.

          1. morag mackenzie

            Thanks for your advice Stuart,

            I contacted Arnold Clark and they have deducted insurances of and £100 deposit they added onto finance.

            However they have emailed revised agreement but the APR is now more. It was 11.4% now its 13% can they legally do this as Im buying same product. I wondered if it was against Consumer Rights Act as they are charging me more.

          2. stuart

            The APR will vary depending on how much money you are borrowing and over how long. The actual fixed interest rate on the money you are borrowing shouldn’t change, but given that you are reducing your borrowing, the APR will be slightly higher.

          3. morag mackenzie

            What is the fixed interest rate is that includerd in your monthly payment. Oh dear Ive asked if I could have same APR rate as it didnt seem right I was paying more for less finance and same product. Thanks for your advice…

          4. stuart

            Fixed interest is the interest you pay on every pound that you are borrowing. APR is the fixed interest plus any fees and charges, and is expressed as an annualised rate (as a fee is paid in one go but interest is paid across the term of the agreement). If you reduce the amount you borrow, the APR should increase slightly even if the fixed interest rate stays the same.

          5. morag mackenzie

            Thanks Stuart. I feel really bad now as I thought they were being sneaky and charging me more. They wont be happy with me, I hope I can still get car. I will apologise but if salesman hadnt adfed £100 onto finance. I wouldnt have had any worries or suspicions. They are also asking (only 30) to be paid for road tax…but I when I asked yesterday about that, was told it was road taxed. I really want the car but think they have made a mistake again.

          6. stuart

            I wouldn’t feel too bad – it sounds like they haven’t been entirely upfront and honest with you (to the standards that they are required to be) anyway!

  17. Tom

    hi, just wondered if you could shed some light on a tricky situation im currently in, with a change of circumstances my Car thats currently on PCP is fast becoming a financial burden and id like to get rid of it, if at all possible.. im about 18-20months into my agreement, can i hand the car back at anytime and walk away? or do i have to pay £2900 to voluntary terminate the contract? i feel thats what i have to do but i wasnt sure if they were just trying to get more money out of me.

    1. stuart

      Hi Tom. You do have termination rights in a PCP agreement, but you will need to check your contract to find out when you can exercise them. In a nutshell, you have to have repaid at least 50% of the total payable (which is not the same as the total borrowed) to be able to give the car back. The finance companies don’t like it, but it is your right. Whether or not you have to pay the additional £2900 to get to the position where you can terminate the agreement will depend on how much you have paid back to date.

    1. stuart

      Hi Tony. You should be able to cancel without affecting your credit history in any way. At what stage of the process are you? If you have ‘signed up for a new car’, does that mean you have signed an order for a car but not signed the formal finance contract? If so, you can simply cancel the vehicle order and then argue with the dealership about getting your deposit refunded. If you have signed your finance contract, you have 14 days from date of delivery to cancel the finance agreement – however, this simply means you will be invoiced for the vehicle, since you still own it if has already been registered.

  18. Gary west

    If I buy a VW the manufacturer and dealer contribute 2,750 to my deposit if I buy with their PCP deal. So what’s to prevent me taking the deal but then after 14 days taking out a bank loan with a lower APR to settle the remaining balance of finance

    1. stuart

      According to the way that most new car contracts are written up by the dealers, there is nothing at all to stop you doing just that. I am yet to see a dealer writing a clause into a contract to say that the deposit contribution is refundable if the finance is cancelled. In theory, they could try and take you to court to reclaim the deposit contribution, but it’s unlikely to ever happen as it’s too much hassle and they would probably lose anyway.

    1. stuart

      Hi Iain. There is no real reason why it should affect your insurance (since it doesn’t affect the value of the car they are insuring), but if they do ask you if the car is under finance, you will need to tell them. If you don’t, and you later make a claim, they could argue that you misled them and refuse to pay out. It’s unlikely, but then insurance companies tend to operate in their own little universe.

  19. Bradley

    Is it possible to have more than once car finance agreement in my name? I have a PCP for my car and I want to start another one for my girlfriend’s car as she can’t get finance approved, but the dealer said I can’t do that. If I can afford it, why not?

    1. stuart

      What you are asking is for is what is known as an Accommodation Deal, whereby you are financing the car for another person who has been rejected for finance. Finance companies won’t allow it because you are simply trying to circumvent her finance rejection. If they (for whatever reason) will not finance her, then they will not approve someone else to finance a car for her.

    1. stuart

      Depends on the finance company and the finance applicant, but it can be possible to finance with no deposit. Most finance companies will still want to see some deposit from the borrower, however, to approve a loan.

    1. stuart

      It will depend on the particular offers BMW have going, as in many cases you get a ‘deposit contribution’ from the dealer/manufacturer. Ask your BMW retailer, but it may be possible to finance with no deposit at all.

  20. Bernie T

    Many dealers use multiple finance providers – so the finance terms & conditions may be different for each finance supplier – important to remember if they are giving you quotes from different providers.

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