Discretionary Commission Arrangements - Complaints and Refunds

You do not need to use a Claims Management Company. You can make the claim directly to the lender and if they reject your complaint you can take it to the Financial Ombudsman Service free of charge, but you must do this within 6 months of the lenders Final Decision Letter.

Car Finance

They say that buying a car is the second largest purchase any of us will make. I don’t know if this is true, but it certainly is a very serious purchase for most of us.

The trouble with buying a car is that so often we buy with our hearts and not our heads. What I mean by that is that before we start to go car shopping, we might set ourselves a sensible budget, maybe the total/highest price we are willing to pay, or a monthly budget to spend on finance. We then go shopping, maybe online initially, but more often than not, we ultimately find ourselves at a dealership ready to buy the car within our budget.

But car dealerships employ salespeople whose job it is to sell cars. The salespeople are often paid a small basic salary and get paid a commission either on every car sold, or on a monthly target. In an ideal world this makes a lot of sense, but sadly it is not an ideal world. The buyer and seller of a car are always on opposite teams; one wants as much money as possible to change hands and the other wants as little as possible to change hands!

Car salespeople have a massive advantage in the sale in that you want the car, and cars are nearly always an emotional purchase. We choose which car and which trim level with our hearts not our heads. It is difficult not to look at the next model up, or the younger car, or the one with the lower mileage, even if this pushes us over our budget.

The car salesperson will nearly aways encourage us to look at a more expensive car than our set budget. We might go on a test drive to see if we really like it and then, when we have decided we do, we get down to the “how are we going to pay for it?”.

The car dealership has several different types of finance they can offer the car buyer; the most popular types of car finance agreements are:

HP is a type of car finance that allows a consumer to buy a car outright without having to pay for it in one go. The price of the car, along with any charges and interest is spread over the term of the finance, typically 2 to 5 years.

HP is like a Personal Loan, but the main difference is that you do not own the car until the final payment is made.

PCP is different, and potentially a very expensive way to buy a car. With PCP the deposit and monthly payments essentially only cover the depreciation (the amount that the car will reduce in value) in the time that you have the agreement for. So, if you bought a car for £10,000 and wanted to pay for it over 5 years, and the car was expected to be worth £4,000 after 5 years, the PCP payment would be calculated on the £6,000 difference.

So, PCP normally has a much lower monthly payment than say HP or a Personal Loan. But you are only financing (or paying for) the depreciation and you will not own the car at the end of the 5 years. So, at the end of the 5 years, you either hand the car back to the dealer and have nothing, or pay a “balloon payment” (pay the £4,000 that the car is valued at) and keep the car.

It is estimated that 90% of new car purchases are on a PCP. Increasingly more and more used cars are being bought using a PCP.

PCH can be the cheapest option for a brand-new car if you do not want to own it at the end of the agreement. There is no option to buy at the end of the agreement and it is, in effect, a long-term car hire policy. Once of the big pitfalls of PCH is that if you decide you no longer want the car and give it back, you may be legally obliged to continue making the payments.

A Personal Loan is a regular instalment loan that may, or may not, be linked to the car purchase. An instalment loan will typically be the purchase price of the car, plus interest, divided over the number of months of the loan.

So, if you bought a £10,000 car and the interest was £10,000 and you wanted it over, say 5 years (60 months), it would cost £333 per month. You own the car from the beginning of the agreement, and you can change the car or sell it during the loan policy.

However you end up paying for the car, there are costs and clauses that the salesperson, or dealer, must tell you about. There are often additional fees such as Arrangement Fees, Acceptance Fees, End of Contract Fees and of course Sales Commission paid to either the broker or the salesperson.

On a PCP policy you need to also look at Mileage Limits. When you take out a PCP agreement the dealer will enter a maximum number of miles that you can drive while the agreement is running. This may be as low as 5,000 miles per annum. The number of miles set in the policy will directly affect the monthly cost of the policy. The lower the mileage, the more the car will be worth at the end of the agreement, so the lower the monthly cost.

There have been cases where the car salesperson has entered a low mileage limit to keep the monthly costs low and not told the purchaser. The problem arises at the end of the agreement when the purchaser tries to return the car. Most agreements will allow the finance company to charge a pence per mile fee for every mile over the mileage limit.

So, if you did 4,000 excess miles over the 5 years (that is only an extra 16 miles a week) and the mileage excess was, say, 20p per mile, you would have to pay an unexpected and additional £800.

Commission paid out for the selling of the car is sometimes hidden or not disclosed; rarely is it highlighted and pointed out to the purchaser. But legally the seller must disclose the commission. Having the commission figures buried on page 7 of a 20-page agreement is hardly disclosing it. This is another area of concern and is an area that prompts a lot of complaints.