Personal contract payments have been increasingly popular over the last couple of years. They ostensibly offer a great alternative to the traditional method of buying your car in one expensive lump sum. Instead, you can offset this expensive payment by making small monthly instalments to rent a vehicle instead. At the end of your contract period, you return the car to the lender. Unsurprisingly, it means personal contract payments have been very appealing to people who are on low wages, in part time employment or have suffered financial hardship.
However, the rise in personal contract payment deals has also facilitated a rise in complaints by drivers across the United Kingdom. More than 5000 complaints were dealt with according to the Financial Ombudsman earlier this year. The grievances stemmed from things such as the mis-selling of personal contract payments, which saw drivers enter into contracts without the correct information, to the customer being slapped with higher interest rates without being made aware of changes. This was corroborated by the consumer advice group Resolve who themselves dealt with 8000 issues related to mis-sold personal contract payments.
The trouble with PCP deals is that they lure people in with the promise of affordably low rates, but between entering a contract and having to return the vehicle at the end of the period, drivers can find themselves crippled with debt. The repayment costs, after all, are affected by the estimated value the car will have at the end of its loan period. This can increase or decrease during your ownership of the vehicle. Furthermore, there are fees associated with things like annual mileage limits that can change the amount of money a driver is paying back. Drivers might find themselves being charged additional costs to what had originally been promised.
As the Financial Conduct Authority investigates PCP and The Bank Of England considers tighter regulations, drivers are urged to avoid entering into a car finance contract without fully understand the possible implications. Although some drivers have had a positive experience and found it to be a cost-effective alternative, there are significant risks involved with personal contract payments. Ultimately, you do not want to be one of the increasingly common drivers who has found themselves in a difficult financial position, saddled with costs they did not think they had signed up for.