An Introduction to PCP Finance
Aside from buying a house, purchasing a car is typically one of the most costly and important life choices that you can make. For most people, buying a new vehicle outright is not an affordable option. That’s why car finance is an essential part of the process. There are several options when it comes to financing the purchase of a new vehicle, including personal contract purchase (PCP).
PCP is a financial loan that provides you with ownership of a vehicle. Similar to a hire purchase (HP) contract, you will be required to pay a deposit followed by several monthly repayments for the duration of the contract. However, with PCP, you don’t pay off the full value of the car and you don’t own the car at the end of the deal unless you pay a final balloon payment.
PCP contracts come with several benefits, including lower monthly payments, protection against vehicle depreciation, and a simplified process for exchanging the car for another vehicle at the end of the term. However, there are also risks that come with a PCP contract. There is no guarantee that you will become the owner of the vehicle unless you can afford the balloon payment at the end of the contract. If you can’t afford it, then you will need to return the car or start a new PCP deal. PCP deals may also come with limitations, such as keeping the vehicle in good condition and avoiding going over a predetermined annual mileage limit. Failure to stick to the monthly repayment plan will mean you are forced to return the vehicle and make a lump sum payment if the car’s value has decreased faster than anticipated.
As with any significant financial decision, it’s important that you receive detailed and accurate information and advice before reaching an agreement. A salesperson is there to secure a new sale for their business, but this should not be at the expense of clearly informing the customer about the specifics of the deal, any associated risks, and other information required to make a well-informed decision. Being mis-sold a PCP finance deal can lead to customers paying more than they should and enduring risks that could have been avoided.
- The lender did not tell you about sales commissions
- The lender told you about commissions, but not how it works
- You paid a high interest rate on the finance agreement
- You bought your car in the last 18 years
The Financial Conduct Authority is Consulting on a Redress Scheme
The Financial Conduct Authority (FCA) is currently investigating car finance mis-selling due to discretionary commission arrangements (DCAs) and excessive fees. As part of this, the FCA have paused the 8-week deadline for providers to respond to complaints about car finance that involved this type of commission. Providers do not have to respond to complaints until after 4th December 2025, at the earliest.
The FCA has confirmed that it will publish the consultation on a redress scheme by early October 2025 and that it expects consumers to receive compensation of under £950 per agreement. The regulator hopes that affected consumers will start receiving payments in 2026.
The FCA says it will aim to make the redress scheme ‘fair and easy to participate in’ without the need to use a claims management company or law firm.
More information on this can be found on the FCA’s website: https://www.fca.org.uk/news/statements/update-motor-finance-work