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Personal Contract Purchase (PCP)

Drivers who have bought cars using a type of finance deal from a dealer are being warned they might have fallen victim to a new type of mis-selling scandal. This is according to the National Association of Commercial Finance Brokers (NACFB), which says that many buyers could have had the wool pulled over their eyes by car dealers.

A PCP is a bit like a personal loan that typically runs for between two and four years. But the size of the loan is equal to the expected amount of depreciation in the car over the length of the deal.

So what are the potential problems identified by the NACFB? The organisation says, buyers can end up paying much more interest than on hire-purchase deals – even if the APR (annual percentage rate) appears to be the same.

This is because the part of the PCP deal that relates to the balloon payment is effectively an interest-only loan, which is not paid down during the term of the deal.

As a result, interest charges mount up more quickly, and anyone who uses PCP and then decides to buy the car outright will face a much higher interest bill than if they had gone down the hire-purchase route.

The NACFB believes that many dealers do not make this clear when marketing PCP loans, and this could potentially provide a basis for mis-selling claims.

The second issue is that dealers typically refer to the difference between the car’s actual value at the end of the loan period and its originally expected “balloon payment” value as “equity” or “profit”.

In fact, the NACFB says, this is not profit but simply the money the buyer has already paid to cover expected depreciation.

What has actually happened in such cases is that the buyer has borrowed more money than was necessary – and therefore paid more interest than they had to – in order to cover the cost of depreciation.

Graham Hill at the NACFB said: “If the claims lawyers conclude there is enough basis to put forward a mis-selling case on PCPs then, given the huge volumes in which these products have been sold to both private individuals and businesses, the car finance industry could be shaken to its roots.

If you believe you were unfairly treated or your Personal Contract Purchase wasn’t explained to you properly, you may be entitled to claim. Typically our clients had no idea they were paying interest on the balloon payment and were not fully aware of any mileage restrictions, however, if you feel the dealer was in any way misinformative or misleading, you may have a case. Please get in touch here.

Quick FAQ's

PCP stands for Personal Contract Purchase. It’s a deal whereby you take a loan to help you get a car, however, unlike a normal personal loan, you don’t pay off the value of the car and you won’t owe it at the end of the deal. You may pay for the car at the end of the contract with a balloon payment.
Every case is different with PCP claims. There are various ways people were mis-sold,such as paying higher interest than if a client took out a hire purchase or a personal loan for a car. Also, dealers often portray the difference between the car’s value and the balloon payment as “profit” or “equity.”
A balloon payment is the final payment at the end of a PCP. It is the total value that the car is expected to be at the end of the contract.
There are no guarantees you will be refunded for claiming for Mis-sold PCP. If you are refunded, the monetary value of any claim is heavily dependent on the circumstances around the mis-sale.
PCP’s are typically cheaper than Hire Purchase agreements as you are not paying off a loan, rather paying off the depreciation of the value of the car. Also, you are paying interest on the balloon payment at the end of the contract, even though this is not physically given to you.