Car finance, such as personal contract payments, is often being mis-sold to drivers in the United Kingdom. High-risk customers, such as those who have had previous debts or are not currently in stable employment, are frequently being awarded car finance offers that they cannot possibly keep up with. Will applying stricter rules to who is awarded a personal contract payment or car finance deal improve the situation?
Many car finance and personal contract payment lenders pride themselves on their ability to quickly process applications and make allowances for customers with poor credits or unstable finances. The appeal is understandable. People with poor credit ratings may need a car to increase their chances of finding work, for example, while students may consider car finance an affordable alternative whilst they study towards potential employment.
However, mis-sold personal contract payments and car finance schemes have left thousands of drivers in the United Kingdom in a difficult financial position. Now, huge amounts of people are stuck with a car they can no longer pay for. There are widespread consequences of this. Not only does it affect individual drivers and families; it also threatens to cause disaster for the British economy. Far-ranging debt could potentially trigger another financial recession with collateral damage that impacts every family and business in the country.
The Bank Of England has recently been contemplating one potential way of curbing the amount of car finance and personal contract payment applications being approved by lenders. They are considering regulating the industry in a way that will make the application process stricter. The Bank Of England is suggesting that lenders offering personal contract payments and other car finance deals implement affordability tests, for instance. This will ensure that people who do not have the financial security to take on significant amounts of debt are not being forced to pay exorbitant interest rates. They will act in a similar to tests applied by banks before mortgages are accepted.
Ensuring the likes of personal contract payments are not sold to people without the financial means to ensure they are repaid is an important step. It guarantees that individuals and families across the United Kingdom are not being saddled with the anxiety of debts – debts that may prove to have a negative effect on the overall British economy. It could help to create a fairer and safer car finance industry for everybody.